Tax can be a daunting subject for most. However, tax plays a large role in everything we do. For instance, we see the Goods and Services Tax every day by going to the grocery store. As a franchisor, it is essential to stay on top of your taxes, or you risk facing charges for tax evasion. Therefore, as a franchisor, you should consider what applies to your franchisor network under Australian tax law, such as the Tax Agent Services Act 2009 (Cth) (TASA). This might include any tax:
- liabilities;
- obligations; and
- entitlements.
This article will outline your tax obligations as a franchisor concerning Business Activity Statements (BAS) and how you can avoid breaching the legislation.
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What is the Tax Agent Services Act 2009 (Cth)?
TASA establishes the Tax Practitioners Board. Additionally, it provides for the registration and regulation of:
- tax agents;
- BAS agents; and
- tax advisers.
To help understand how this law relates to franchising, we explore some taxation basics below.
What are Business Activity Statements (BAS)?
All businesses who register for Goods and Services Tax must periodically lodge a BAS to the Australian Taxation Office. The law requires that business owners lodge BAS periodically. Although, most business owners find it challenging to do so without assistance.
Essentially, BAS summarises all the business taxes you have to pay the government during a specific period. They exist to help businesses pay their tax liabilities. Most businesses tend to lodge their BAS monthly, quarterly or annually. Additionally, your BAS might include some or all of the following payments:
- goods and Services Tax (GST);
- pay as you go (PAYG) income tax instalment;
- pay as you go (PAYG) tax withheld;
- fringe benefits tax (FBT) instalment;
- luxury car tax (LCT);
- wine equalisation tax (WET); and
- fuel tax credits.
Before introducing TASA, it was not a requirement to register entities that would provide BAS Services. However, this is no longer the case. Since the TASA came into force in 2010, it became a requirement to register entities that provide these BAS services for a fee or reward. Furthermore, the Act broadly defines a BAS service as a tax agent service representing an entity in its dealings with the Australian Taxation Office. Additionally, a BAS service may include determining or advising an entity’s:
- liabilities;
- obligations; or
- entitlements (under a BAS provision).
Franchisors and BAS service
As a franchisor, when you enter into a franchise agreement, you agree to provide various services to franchisees. Furthermore, franchising agreements can fall under many different structures. In addition, considering the broad definition of BAS under the Act, it is likely that franchisors providing specific services may fall under TASA.
For example, consider you prepare and lodge a form for your franchisee, with their approval, to the Australian Taxation Office. Additionally, this form might include information regarding a franchisee’s tax:
- liabilities;
- obligations; and
- entitlements.
Completing this action would likely fall under the broad definition of a BAS service.
Moreover, another example might include providing your franchisee with all the software they need to look after their employee’s pay. This could include software that generates PAYG reports. In this case, your services to the franchisees would likely fall within the scope of a BAS service.
Ultimately, under TASA, there are several situations where you could be unintentionally providing a BAS service to your franchisees. Therefore, it may be helpful to consult a lawyer, or you may face legal consequences for providing BAS services as an unregistered Tax Agent.
How Can I Avoid These Situations?
Failure to register where required is a contravention of a civil penalty provision. You providing a variety of services to your franchisee that fall within the broad definition of BAS service is a possibility you need to keep in mind. With this in mind, as a franchisor, you should review not only your franchise agreement but your operation manuals and training programs to make sure you will not be providing BAS service.
As a franchisor, you will likely provide various services to your franchisees that may fall under the definition of a BAS service under TASA. Therefore, if you do not register as a Tax Agent, you can be held liable for breaching the Act. Ultimately, to avoid this, it would be helpful to review your:
- franchise agreement;
- operation manuals; and
- training programs.
Doing so will help you ensure that you are not providing a BAS service to your franchisee. Additionally, it may help to consult a lawyer when reviewing these documents.
Key Takeaways
In short, franchising law itself can be complex. However, trying to understand your tax obligations on top of this can be overwhelming. Therefore, it is essential to be careful and consider TASA when providing services to your franchisees. The best way to ensure you are not breaching legislation is to review your franchise documents.
If you are unsure whether TASA will apply to your current franchise business, do not hesitate to contact one of our franchise experts. Our experienced franchise specialists can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
This Act introduces and establishes the Tax Practitioners Board. Additionally, it provides for the registration and regulation of tax agents, BAS agents and tax advisers.
A Business Activity Statement (BAS), is a form from the Australian Taxation Office that businesses need to complete. It summarises all the business taxes you have paid or will pay to the government during a specific period.
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