How to Prepare Your Startup for Tax Time

In Short

• Maintain accurate records of all transactions, including receipts, invoices, bank statements, asset registers, loan documents, tax returns, and insurance documents. The Australian Taxation Office requires these records to be kept for five years.
• If registered for Goods and Services Tax (GST), ensure timely preparation and lodgement of Business Activity Statements (BAS), reporting GST, Pay As You Go (PAYG) instalments, PAYG withholding tax, and other obligations.
• Identify and claim all applicable tax deductions, such as operating expenses, depreciation of assets, and startup costs, to reduce taxable income.

Tips for Businesses

Regularly update and review financial records to ensure accuracy and compliance. Utilise accounting software to streamline BAS preparation and lodgement. Consult with a tax professional to maximise deductions and ensure adherence to tax obligations.

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Table of Contents

• Organise Your Documents
• Prepare Your Business Activity Statement
• Prepare PAYG Employee Payment Summaries
• Report Any Employee Share Scheme Interests
• Claim Tax Deductions
• Key Takeaways
• Frequently Asked Questions

Tax time can be a stressful challenge for startup founders, especially if you are filing for the first time. To avoid frustration and ensure peace of mind, it is crucial to understand the process when preparing documents and claiming tax deductions. A little preparation and organisation can go a long way and make a huge difference. This article provides you, as a startup founder, with some tips to prepare your startup for tax time.

Organise Your Documents

You are required by law to keep all records and documents related to your business operations. Records like financial and legal documents allow you to track your business operations and cash flow, understand your startup’s finances and prepare your tax return. Such records may include:

• receipts and invoices for goods and services you buy and sell;
• bank statements;
• a register of any assets;
• documents related to any loans and/or shares;
• annual tax returns and activity statements;
• insurance documents; and
• employees’ pay.

The Australian Tax Office (ATO) requires you to keep records for five years after creation. Keeping accurate and up-to-date records also assists in the event of an exit.

While it is vital to organise all of your financial and legal documents for tax purposes, the end of financial year is a great time to ensure all of your other documents are valid, accurate and up-to-date. For example, you may wish to update your:

• company constitution;
• shareholders agreement;
• subscription agreement;
• employment contracts;
• policies and procedures relating to your startup’s workplace;
• customer records; and
• marketing and advertising campaigns.

Prepare Your Business Activity Statement

If your startup is registered for goods and services tax (GST), you need to prepare and lodge a business activity statement (BAS).

Your BAS helps you report and consequently pay:

• GST;
• pay as you go (PAYG) instalments;
• PAYG withholding tax; and
• other taxes.

If you have registered for an Australian Business Number (ABN) and GST, the ATO will automatically send you a BAS when lodgement is due (quarterly). It is important to lodge your BAS by the due date that the ATO provides.

Prepare PAYG Employee Payment Summaries

If you build your startup team by hiring employees, you must provide them with a payment summary. The payment summary must include all of the payments you made to them and withheld from them during the past financial year. Even if you did not withhold any tax from an employee, you must still provide them with a payment summary, either electronically or via hard copy.

You must report any tax you withheld from any payments to employees to the ATO. You must also lodge an annual PAYG withholding summary report to the ATO, after providing your employees with their payment summaries. The report should include all of the payments you made to your employees and any tax you withheld.

Report Any Employee Share Scheme Interests

If you have an employee share scheme (ESS) or an employee stock ownership plan (ESOP), there may be tax concessions available for participating employees. Under an eligible startup ESS or ESOP, a participating employee only has to pay tax when they receive a financial benefit. Therefore, the employee does not pay tax when they receive, vest or exercise the option, but only when they either sell the options themselves or the underlying shares.

There are separate reporting requirements to both participating employees and the ATO. You must:

• provide an ESS or ESOP statement to your employees by 14 July; and
• lodge an electronic ESS or ESOP annual report to the ATO by 14 August.

Claim Tax Deductions

Deductible costs can significantly assist you with cash flow and in running your startup. Therefore, you should take advantage of tax deductions available to startups and claim where possible. Again, keep organised records, because they help in claiming deductions. 

Startup Costs

You can claim tax deductions for expenses when obtaining professional legal and accounting advice relating to the structure or operations of your startup. If you pay any taxes, fees or charges to government agencies to establish and set up your startup, you can also claim tax deductions.

For example, if you incorporate your startup, you can claim a deduction on the fee for creating a company. You may also be able to claim deductions for costs associated with setting up your startup. You can do so immediately or over five years, depending on your particular circumstances.

Assets Less Than $20,000

If you purchase an asset for your startup before the end of June 2018, for less than $20,000, you can claim an immediate deduction. However, your startup must have a turnover of less than $10 million and you must first use or install the asset in 2018.

You can claim an immediate deduction for the following types of assets:

• office furniture and fittings;
• display screens, kitchen equipment signage and air conditioners;
• vehicles used for work; and
• IT equipment like computers, servers, printers.

Research and Development (R&D) Activities

If your startup is incorporated and spends more than $20,000 on eligible R&D activities, you may be eligible for the R&D tax incentive, a refund of 45%.

You typically have until 10 months after the end of the financial year to register for the refund, but the sooner you claim, the better!

Key Takeaways

As a startup founder, dealing with finances and tax can be stressful, especially as the end of financial year approaches. It is important to keep records of everything to assist you during tax time. You should appropriately organise and prepare the necessary documents to wrap up the financial year, including your:

• BAS;
• PAYG employee payment summaries; and
• any statements for ESS interests.

You should take advantage of the tax deductions available to startups and claim deductions on startup costs, assets less than $20,000 and R&D activities.

If you have any questions or need assistance to prepare your startup for tax time, our experienced taxation lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions