Aug 04 2007
You’re an Australian blogger, and you’re thinking that maybe your blog is serious enough to warrant the term “business”. What do you do?
Hobby or Business?
This area is a little grey. Chances are if you have another source of income (such as a regular paying job), and you are earning a meagre amount of income from blogging, you won’t need to declare it (and you wouldn’t be claiming any expenses either). See How to tell whether I’m in Business for more information.
Now I just need someone to tell me how to start an online business, sort of like a step by step guide – care to tackle that one Meg? Stuff like ABN and business registration and tax etc? Boring, but necessary.
This quite a complex issue, and I’m going to preface this with a big disclaimer:
I HAVE NO ACCOUNTING QUALIFICATIONS. What follows is a rough guide, and I encourage you to seek professional advice before relying on this information.
Premise – The premise is that you are a sole trader (i.e. it’s just you, you don’t want to form a partnership or register a company), you have an existing Tax File Number (if you don’t you’ll need to apply for one of these first) and you don’t have employees.
So you’ve decided that you qualify as a business. You’ve got a couple of options, based on the above premise.
- Trade under your own name
- Register a Business Name
If you trade under your own name, then you would not advertise any other name. I’m assuming if this translated to a website, it would be JohnCitizen.com or JohnCitizen.id.au. Your bank accounts would be in the name of John Citizen, as would your business cards and other stationery, and any invoices you issued.
It’s not absolutely necessary to register a business name, but it might be a good idea. By registering, it will help protect your trading name within your state, and strengthen any claims that might be made against your use of your chosen domain name.
Business Name registrations are done via the various state departments that deal with consumer affairs and fair trading, as outlined below:
- NSW ~ NSW Office of Fair Trading (current fee $142)
- VIC ~ Consumer Affairs Victoria (can register online, current fee $77.10)
- QLD ~ Office of Fair Trading Queensland (current fee $116.90)
- SA ~ Office of Consumer and Business Affairs (current fee $139)
- WA ~ Consumer and Employment Protection Business Names (current fee $90)
- TAS ~ Consumer Affairs and Fair Trading (current fee $125)
- ACT ~ ACT Registrar-General’s Office (current fee $133)
- NT ~ NT Government (current fee $60)
- All the sites contain links to application forms which can be printed.
- Before you register a business name you should check the National Names Index (to determine if the business name already exists) and also IP Australia (to make sure you’re not infringing on a registered Trade Mark).
- You are usually able to nominate a few preferred names, which are checked in order of preference, so list your preferred choice at number 1.
- Read the notes that accompany the form, and any other information pertaining to the registration. Some states have special requirements, for example, about registering business names containing “.com” or “.com.au”. Also, if your business trades only via the internet, in NSW there is no requirement to register the business name.
- Some states allow the application form to be faxed.
- Make sure you include payment with your application form.
Your next decision is whether to apply for an ABN (Australian Business Number). One entity (i.e. YOU, as the sole trader) will only ever have one ABN, so irrespective of the number of business names you register, all your transactions will use the same ABN. (note also: income is matched to your Tax File Number (TFN), irrespective of the number of Business Names you may be trading under, so one person = one TFN + one (optional) ABN). You do not need to register a business name to get an ABN.
The Australian Business Number (ABN) is a unique 11 digit identifier that makes it easier for businesses and all levels of government to interact.
When will you use your ABN?
Examples of when you may need to use your ABN include:
- when dealing with the Tax Office (the ABN is quoted as a reference)
- in the future, when dealing with other government agencies subsection 3 (1) New Tax System (Australian Business Number) Act 1999
- so that other businesses will not withhold tax at the top marginal rate from payments they make, and
- when supplying goods and services to other businesses (and other entities carrying on enterprises).
Why Apply for an ABN?
Applying for an ABN is not compulsory. However if you make any “sales” to Australian businesses, they are entitled to withhold 46.5% of the payment if you don’t quote an ABN. So say XYZ Pty Ltd decides they want to place some advertising on your site for $1,000 for the month, if you don’t quote your ABN, they are required to keep $465 from this payment and send that to the Australian Taxation Office (ATO), which means less money in your pocket until tax time.
If you want (or need) to apply for GST registration (see below) you must have an ABN.
You can register for an ABN at the Australian Business Register, and it is free.
Should I register for GST (Goods and Service Tax)?
It is only compulsory to register for GST if your annual turnover (all the money you receive from trading) exceeds $75,000 (and as soon as you realise your turnover will exceed this amount, then you must register within 21 days).
- If you are not registered for GST, then you issue an “invoice” for any sales and you do not include GST in the sale price.
- If you are registered for GST you issue a “tax invoice”, of which GST will comprise 1/11th of the sale price.
- If you register for GST then you will need to submit periodic Business Activity Statements (BAS).
- You can register for GST at the Australian Business Register (this can be done at the same time as you apply for an ABN, or separately)
- See GST for Small Business for more information.
Taxation and the Small Business
If you are operating a business you are required to keep records of all your financial transactions and bank statements. The easiest way of doing this is to have a separate bank account for any business transactions you make, and do not use it to pay personal bills.
As a sole trader, you can not pay yourself a salary. Any funds you withdraw are “drawings”. It’s much easier to move these funds (as required) into a personal account, and do all your non business banking from that account.
You are taxed on your income at the end of the financial year. This figure will be derived from your sales minus your business expenses (and don’t forget about all those payments into your PayPal account!). See Tax Basics for Small Business, for a good overview.
Don’t forget to make provisions for a potential tax bill at the end of the year. If you earn over $6,000 (sales minus expenses) you will have a tax liability, which will be determined when you lodge your tax return. Either put this money aside (AND DO NOT TOUCH IT), or make voluntary payments to the ATO. The last thing you want is a nasty shock.
What Kind of Expenses Can I Claim?
The first rule of thumb with expenses is that you need to show how they relate to your business income. For more information see Carrying on a Business in your Home.
As a guide you might be able to claim some of the following (I’ve made the assumption that you are working from a designated work area within your home. You might say that your home office, for example, takes up X% of the floorspace of your home).
- internet connection (the portion that relates to earning your income)
- depreciation on your computer, office furniture, (and maybe camera if your blog relies on the photos you take?). You can depreciate items you owned prior to commencing business.
- x% of your electricity and gas
- a percentage of your phone calls (which you estimate to be business related)
- business registration fees
- bank fees and charges
- registered tax agent fees
- business related travel / car (you’ll need to look in more depth about how to keep records for this)
- subscriptions, training and periodicals (newspapers and magazines)
- X% of your rent (if applicable)
- X% of your mortgage, rates and insurance etc.
With regards to the last point tread with EXTREME caution. I would consider you get advice from an accountant, sooner rather than later, as there may be capital gains tax implications either way.
Below is a pretty rough flow diagram of the whole process.
Remember, I don’t have any formal qualifications in this area! This is a rough guide at best.
If you have any tips, corrections etc, please feel free to leave a comment below.
Update 1st October: For some tax deductions that might be relevant for you see 46 Tax Deductions that Bloggers Often Overlook
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