Join our investing community

Starting my own Businesses - Should I get 2 ABN's?

Discussion in 'Business & Startup Investing' started by Sk3tChY, 28th Sep, 2009.

  1. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
    Posts:
    358
    Location:
    Sydney, NSW
    Hey guys,

    Well I'm in the process of starting up my own small businesses and was just hoping for a little bit of information on perhaps what I should do or need to do.

    I'm not really sure how to go about doing this so I'll just put the idea to you guys.

    I'm hoping to start 2 businesses, one which specializes in Home Networking and other general PC related stuff and a second one for Custom PC Cabling.

    Both businesses will initially be souly operated and ran by myself with no other employees and both businesses will share the same phone number, however I will be using 2 different domains so each has it's own website.

    I'm hoping to use these businesses for 2 main reasons;

    - Get some extra tax back by claiming things back on the businesses.
    - Earn a little extra cash on the side outside my normal full-time job.

    Anyway, I've tried reading up a little on business.gov.au home page but haven't found much useful info, my questions are fairly general;

    1. Should I get 2 seperate ABN's or just use 1 ABN?
    2. If I only use one should I just put my own name as the business name?
    3. I'm under the impression that income made with my business will just go on top of my full-time job income, and so I'll start paying 30% on all income until I reach the next bracket?

    In regards to claiming expenses and other things back on the business;

    4. Is there any good websites that give some details on this?
    5. Is there any minimum amount of income the business needs to make?

    Thanks guys, by all means if there are any useful links that may answer more of my questions please let me know, that'd be great.

    Cheers.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    My understanding is that if you are acting as a sole trader (trading in your own name), then you only need 1 ABN. You don't even need to register a business name if you are happy to trade under your own name. I'd keep it simple to start with - minimise costs. You don't need to register a business name to run a website. Remember that you'll probably need an ABN (or ACN or BN) to be able to register a .com.au or .net.au domain name - so get that sorted first.

    Sole traders income gets added to your normal salary income, so you'll pay tax at whatever rate you currently pay (assuming it doesn't move you into the next tax bracket).

    When it comes to claiming expenses, just be careful that the ATO won't treat your business as a "hobby", especially if you are claiming substantially more than you are earning from your business activities. If you don't ever have a reasonable expectation of making a profit, the ATO might take a dim view of some of your claims.

    I'm not an accountant - this is just my personal understanding of things and is not advice.

    At the end of the day, running a business is a bit more complex than most investing activities, so getting a good accountant is worth the effort in my opinion.
     
  3. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
    Posts:
    358
    Location:
    Sydney, NSW
    Hey Sim.. Thanks for the reply mate. :)

    Well I don't mind using my own name, it's just the websites I use will have business type names. Like just for examples sake say I call my Home Networking thing 'HNS - Home Networking Services' or whatever.

    Yeah you need an ABN to get a .au domain. Could you elaborate a little as to what you mean by minimising costs? I'm under the assumption that perhaps if I class myself as a 'Sole Trader' maybe I don't have to pay certain fees or something?

    Cheers mate, this was what I figured I just wanted to clarify.

    Well I won't be claiming huge amounts all the time. Initially however I'd be claiming a somewhat substantial amount (About $1,500) on a Home Server to serve vital things for my businesses. (Webserver, DNS, Mail etc.)

    Naturally mate, I'd just much rather know the odd thing or two before getting an accountant so I have a bit of a better understanding of things.

    Would you happen to have any idea on how much an accountant would charge for this type of advice and how?
     
  4. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
    Posts:
    358
    Location:
    Sydney, NSW
    Ok, well I've spent some time doing a little reading and gone through the ABN application form online and pretty much only have a few questions I haven't really been able to find definitive answers for, so any opinions would be very appreciated.

    I understand I should seek proper advice from an accountant and will more than likely be doing so, however I'd like to have some sort of knowledge going in there.

    1. Can/Should I use 1 ABN and 1 trading name (my actual name) for my businesses? They're both going to be completely operated and funded by myself only. Or should I put 2 trading names for each one?

    Basically I'm just kind of splitting up what I'm going to be doing. Selling my services on 1 website and selling some goods on another. Each site having it's own logo/name etc.

    2. How does claiming back expenses work? Do you need to earn as much as you claim? I ask because I'll probably be spending $2k or so setting everything up, buying a home server etc. for the business and I'm not sure how much I would earn in the first year and would like to claim the expense of the server on the business as it would be primarily used for serving the 2 websites, DNS, Mail etc.

    3. Would I need to register for GST?

    I've done some reading on this and found that you must register if your business earns over $75k, I highly doubt I'd ever earn that much with my businesses. My understanding is that if I don't register it means I don't have to pay GST on my earnings, but then can't claim back GST on expenses, which is perfectly fine.

    4. Would I need to apply for PAYG?

    I wouldn't be employing anyone so it would just be my own earnings, and I'd be quite capable of putting aside 30% (my tax bracket) of my earnings in a savings account to pay it all in one hit at tax time. I'm just not sure how PAYG would work in my situation, would it just mean whenever I make a sum of money I would have to deposit 30% of it into some PAYG account?

    That's basically it for now, my main query/concern is how to go about setting up the Trading Name. I'm thinking perhaps just leaving the Trading Name as my name would be the simplest/easiest option, I'd just like to clarify this though.
     
    Last edited by a moderator: 29th Sep, 2009
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    The websites don't really matter - you can have as many as you need no matter what your business or trading name is.

    What you need to think about is two things:

    1. how will you introduce yourself and your business to people, what name will you use?

    (when I say, "Sk3tChY" below, replace that with your own name of course!)

    "Hi, I'm Sk3tChY"

    or

    "Hi, I'm Sk3tChY from Sk3tChY's Home Networking"

    or

    "Hi, I'm Sk3tChY from Sk3tChY.com.au"

    or

    "Hi, I'm Sk3tChY from Sk3tChY Group trading as Sk3tChY's Home Networking"

    etc.

    ... and what will be on your business cards?

    2. More importantly, when you get paid, will people be writing cheques? Will you want them to make it out to "Sk3tChY", or to "Sk3tChY's Home Networking", or "Home Networking Guru" (or whatever your business name is)? If they deposit money, will they deposit into your personal account, or into a business account?

    This will be determined by the business names you register (if any).

    The one thing I'm not 100% sure about (which is actually the whole point of your question - sorry), is whether a sole trader's ABN is associated with your own name or with the business names you register (I run Pty Ltd companies which are separate entities, hence they have their own ABN). I suspect that since a business name isn't a separate entity that the ABN is actually associated with you personally, not with your business names (this is a guess), so you could potentially have multiple business names with the same ABN?

    I just had a quick look at the instructions for applying for an ABN as a sole trader: http://ato.gov.au/download.asp?file=/content/downloads/nat2938.pdf

    ... it says at Q3, "Do you have more than one trading name?" ... and asks you to list the other trading names you have registered. I take this to mean that one ABN application is used for all trading names.

    At this point I guess I should ask - why do you really need two business names - do you really need to trade under two separate names? As I mentioned, just because you have 2 websites, doesn't mean you need two business names (although once upon a time it may have been more important due to the way in which you registered .com.au domains, but not anymore).

    Look at Woolworths online - this is Woolworth's home shopping website - owned and operated by the same business that runs Welcome to Woolworths (they don't have a separate business operating Homeshop, it is the same business).

    There's no reason you couldn't get away with just 1 name ... examples:

    sketchy.com.au - Logo: Sk3tChY's Networking Services, Copyright: Sk3tChY's Networking Services

    pccabling.com.au - Logo: "PC Cabling by Sk3tChY's Networking Services", Copyright: Sk3tChY's Networking Services

    You just have to be clear that "PC Cabling" is not a separate business ... you can't "trade" under that name unless you have it registered ... so any words you use in the title/logo should be a description rather than a trading name. Just like "Homeshop" is a description of Woolworth's Home Shopping.

    You make it clear at the bottom of the page and in the about and contact pages of your PC cabling site that the site is owned and operated by your other business.

    This means you only need 1 ABN and business name - and if you set up a bank account and get a cheque book, you'll only need to do that once and not twice.

    You can always split the businesses into separate entities down the track if you need to.

    By the way, check out the ATO's ABN entitlement tool: Tax Tools

    ... also have a look at this page describing the characteristics of a business (vs a hobby): Tax basics for small business

    Don't forget that initial startup costs are not directly claimable - at best they will be depreciated.

    ATO has a page on things you cannot claim: Tax basics for small business

    By the way, do you need buy a server? Why not host your website using a web hosting service, there are a lot of them around and they generally cost very little. I use Quadrahosting for my websites, and a basic Unix hosting account that includes the ability to run multiple websites each with their own email addresses (as many as you like for each domain), starts from as little as $20 per month. You don't have to worry about your server or link going down, and you don't have this huge capital expense up front.

    If you need a machine to use as a testing/learning tool, that's different ... but I wouldn't want to run my business websites from the same machine - I would want to be able to reboot it (or break it) at will without needing to worry about whether people can get to my website or send me email.

    In general, you do need to have an expectation of making a profit over time ... the ATO takes a dim view of people who start a business with the main goal being to decrease their personal tax - they may well disallow your deductions by categorising your operation as a hobby.

    You need to register if your business has a turnover of more than $75K ... that's not profit, that's turnover (income before expenses).

    You are correct that if you aren't likely to turn over that much, you don't have to register, you wouldn't charge GST or issue "tax invoices", but you also can't claim input credits for the GST you've paid. You'd need to do the sums to work out whether you would be better off claiming GST even if you don't have to ... versus the extra effort and paperwork required if you do.

    You don't have to worry about PAYG ... when you submit your tax return, the ATO will work out whether you need to make PAYG payments (will only happen if you earn over a certain amount from your activities), and then they will send you a quarterly statement indicating how much you need to pay.

    There's nothing wrong with deciding to trade under your own name ... just remember that you can't introduce yourself as: "Sk3tChY's Networking Services". You can still introduce yourself as "Sk3tChY, who does networking services" ... you just have to make sure it is said as a description, not a trading name.

    I think it's worth registering a trading name - that way you can use it in branding and logos and such.
     
  6. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
    Posts:
    358
    Location:
    Sydney, NSW
    Thanks for the reply Sim, I've just tried doing a little more reading and what not before replying.

    Well I'm not really sure.. I'd mostly be getting my clientele via my websites and business cards..

    I'd probably put something like the logos for each website mentioning each website and then put my name on the business cards, I did a quick little mock up in paint to give you an idea on what I mean;

    [​IMG]

    Hmm, this is something I didn't really think about.

    1. Are you basically saying that if I use a trading name then I'll have to get a business account and have people make payments to that name and not my own personal account?

    Hmm, definitely something I'm considering.

    2. So using the Custom PC Cabling example. If I were to set up a website custompccabling.com.au and have a logo created for it and had the logo/website on my business card but used my Legal Name as my Trading Name that would be perfectly fine provided I used my Legal Name on the invoices right?

    Well I doubt I'd ever want to split into separate entities because everything would be completely ran by myself. The most I'd probably do is register more/less/different business names under the 1 ABN.

    3. This wouldn't be difficult would it? (Seems to me it would be as simple as logging on to the ATO website and changing your profile so to speak, and adding in the new trading names)

    Have done, I already know I'm definitely entitled to an ABN as I've had one previously.

    4. I had a read over it and going off the things mentioned on the page I would say it's a business not a hobby. However through other reading It came to my attention that basically if you earn less than $6000 it can be considered a hobby. Or is it if you earn less than $6000 is MUST be considered a hobby?

    5. How would these be defined though? My hope was to claim a PC on the business, if I were to set the business up and wait a little while would it still be considered an initial start up cost?

    Thanks, will definitely read that.

    I work in I.T. and part of me doing this is to gain knowledge and experience. I aim to eventually start setting up servers for clients in SOHO environments and what not so having my own dedicated server to play around with will prove to be quite useful.

    Plus this large capital expense would be one I'd have make anyway as I'm in need of a dedicated server to use as a File Server & MythTV box. At least if I buy it through the bussiness it at becomes claimable.

    I use VM's for testing/learning. You can run a VM in bridged mode and turn it live (which I've done before).

    Basically I'm going to be upgrading my PC in the not so distant future anyway, with this business It means I can claim back some of the costs which is better than nothing.

    6. Well what exactly do they mean by 'profit' .. My business expenses will be minimal to nil as they will primarily be services, the only expenses I'll really have will be the costs on the server as well as a few other minor costs for tools/equipment. I'm fairly confident I'll always be making a profit on my business, it's just it won't be very much profit, as in I'd probably make less than $6000 a year, would this still be fine?

    I don't see this happening any time soon, unfortunately. :p

    Yeah, I've weighed it up and I'll have very minimal business expenses, so I'd be best off not registering with GST.

    Well I guess if they'll let me know when I need to worry about PAYG I may as well not worry to much about it.

    7. If I register a trading name does that mean I'll have to open up a business account and have people make payments to that account and use that account on all expenses?

    I'm considering perhaps just using my Legal Name as my Trading Name initially and perhaps later on down the track if I choose/need to I'll add a proper trading name, this is possible and easy to do right?

    Again, thanks for the reply Sim.. I'm a fair bit more in the know and confident about things now and hopefully once I've figured out whether to register a trading name or not I'll be ready to go.

    EDIT;

    I just came across this Business names - NSW Office of Fair Trading and it looks as if Registering a Business Name and a Trading Name are 2 different things?
     
    Last edited by a moderator: 6th Oct, 2009
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Not really - I think it comes down to semantics.

    I would use the term "trading name" to refer to a business name you register for a Pty Ltd to trade under (eg: My Company Pty Ltd trading as Widgets Galore).

    If you register a business name as a sole trader, then you can just trade as: Widgets Galore.

    Business Names are state-specific, when you register your name you get assigned a business number which is relevant only to the state it was registered in ... eg: NSW BN98431040

    As for bank accounts ... I think that if you register a business name as a sole trader, you can open a bank account that uses both the business name and your own name ... eg you can bank a cheque made out to yourself personally or one made out to your business name. Your cheque book will probably list both. You'd need to check with your bank about how this works. If you don't plan on running a separate bank account, this isn't really relevant anyway ... you don't strictly need to as a sole trader - it just means you need to keep better records to identify business expenses vs personal expenses.
     
  8. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
    Posts:
    358
    Location:
    Sydney, NSW
    Hmm.. Well all of this seems fairly complicated, there's so many different things that can be done etc. etc.

    So to start off with for now I've basically just applied for my ABN and used my Legal Name as my Trading Name, once I've started everything up and start actually getting some clients and what not I'll seek proper advice from an accountant.

    I think all that it really means for me is that I have to make sure my invoices are made out to my name rather than the business names, which shouldn't be an issue.

    Thanks Sim for all the assistance.

    My only real query for now is in regards to claiming back on the PC I'll be buying to use as my Webserver/DNS Server/Mail Server etc.

    My original thoughts were;

    1. I can claim back my tax bracket amount on the PC. (30%)
    2. Because it will be 100% for the business I can claim 100% of 30% back.

    Although now I'm not sure if I can claim depreciation as well, if I can ONLY claim depreciation. I'm not sure if I can only offset my expenses against my revenue/profit, etc. etc.

    Would you or perhaps anyone else on this forum be able to give me some sort of idea on how claiming back this expense would work?
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Yup, any asset which costs more than $300 will need to be depreciated over the life of the asset - (unless the effective life of the asset is less than 1 year).

    A PC or server will need to be depreciated over something like 3 or 5 years (the ATO publish guidelines as to what the typical life of various types of assets are).

    As a sole trader, your legitimate business expenses (and legitimate personal expenses) get deducted from your gross personal income to determine your taxable income - and you get taxed on that. With depreciation, you (or more likely, your accountant) would create a depreciation schedule to track the depreciated value of the asset over its life and each year you would add an expense claim for the amount of depreciation for that year to your tax return.

    For example, let's say that you get to depreciate your PC at 20% in the first year and it cost you $3000 ... thus the depreciation expense that you claim in your tax return at the end of that first year is $600. The following year you would claim somewhat less (depending on the method used to calculate depreciation), and you would keep claiming each year until the asset is written down to an effective $0 value. If you dispose of the asset in the meantime, you can write it off completely at that point.

    Guide to depreciating assets 2008-09

    I would suggest relying on an accountant to work out depreciation - it gets too complicated too quickly to try and do it yourself.
     
  10. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
    Posts:
    358
    Location:
    Sydney, NSW
    Cheers Sim, you're a champion mate.

    Well I'm personally great mates with a Senior Accountant at KPMG who would most likely be able to do the Depreciation schedule for me and what not without much hassle.

    1. Just wondering, by any, that can mean anything right? Even if you paid over $350 for a pen?

    2. Could you replace asset with expense? Or are expenses immediately claimable?

    3. How can you prove the effective life of the asset is less than 1 year?

    Hmm, this kind of ties in with question 2. So 'expenses' are deducted from my Gross Personal Income, so basically offset it? (i.e. If I make $30,000 but spend $20,000 in expenses, I only pay tax on $10,000)?

    4. What would Legitimate Personal Expenses be though?

    I'll try reading over the Depreciation link you provided to get a better idea on how it all works, thanks.

    Again, thanks for the replies Sim, big help. And my apologies for the 20 questions, it's just proving to be fairly beneficial, at least now when I finally do speak with an accountant I have a good understanding of the basics and concepts and what to ask.
     
  11. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    Sk3tChY
    Will you be running the cables yourself or getting someone else to run them and you do the terminating etc??
    Let me know when your websites are up.
    Good luck
     
  12. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
    Posts:
    358
    Location:
    Sydney, NSW
    Will do champ, hopefully the site will be up and running within the next month.

    In the beginning I'll originally just be making the cables for PC internals and Ethernet Networks but soon after I get everything up and running I'll be getting a proper cabling license which will allow me to legally lay cable and what not. I'm not exactly sure if you need to do different courses for different types of cable, but initially I'll be doing everything that's required to do phone & ethernet cables. Possibly over time if the business takes off enough I'll look into what's needed to lay electrical cable.

    Also, just a useful thing to know, make absolutely sure you get your cables professionally laid by a certified cabler. If you don't you have a whole bunch of things to worry about, including large fines.

    I also heard one story about someone who didn't get their cables professionally done by a certified cabler and their house burned down in a fire, the insurance company found out and basically didn't pay him out.
     
  13. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    No worries, we do that and we also have licenced inhouse cablers anyway.

    In regards to insurance refusing payment, I wouldn't read too much in the rumours going around.

    For an insurer to refuse payment there must be very strong grounds.
    eg it'll have proof that a particular cable which was not laid by a professional installer was the cause of a fire.

    Regulatory fines are 1 thing but I have yet to see an ethernet cable causing a fire....
     
  14. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Yes, anything which costs more than $300, be it a computer, a pen, some software, a chair ... must be depreciated.

    Subscriptions which expire after a year can be claimed in the year the expense occurred ... for example, I don't buy copies of Quickbooks to manage my accounts, I have an annual subscription which means they always send me the latest version as soon as it is released. The annual subscription is more than $300, but I claim it all in the same year since the software I get will only work for a year unless I renew.

    Note that if you are buying something which will be on-sold to one of your customers, that's treated a bit differently.

    Just terminology really. An asset is anything worth more than $300 which has an effective life of more than 12 months.

    Guide to depreciating assets 2008-09

    Even a paperclip bought for the business is considered an asset, but if it is worth less than $300, you get to write it off in the year in which it was bought rather than depreciating it over its useful life.

    Some assets worth less than $1000 (or an asset worth more that has been depreciated over time and is now deemed to be worth less than $1000), can be added to a "low value pool" which makes it easier (and sometimes quicker) to depreciate - saves fiddling with very small amounts in your depreciation claims. Your accountant will know how to deal with this.

    Guide to depreciating assets 2008-09

    If you are doing something that is different to the ATO's guidelines, you need to keep records explaining how you worked out the effective life - the depreciation schedule gets sent to the ATO with your tax return, so they can and will check it to make sure you aren't doing anything dodgy.

    Yes. As a sole trader, there is no differentiation made between your personal income/expenses and your business income/expenses ... you would add up all income from all sources (salary, business income, investment profits, assessable capital gains, etc) ... subtract all valid deductions (expenses, depreciation, tax already paid, assessable capital losses, etc) ... and this gives you your taxable income, and you pay tax on that.

    The ATO does look for "strange" tax returns where people are claiming substantially more than is usual and will look at them more closely - possibly even asking for more information and documentation about the claims. This is nothing to worry about if you are legitimate, but just be careful about the increased ATO scrutiny you will likely face if claiming a lot.

    Things you could reasonably claim in the course of earning your personal income. As a sole trader of course, your personal income is largely the same thing as your business income - so most of this you would already claim anyway ... but you might also have other sources of income - perhaps you have a part-time job as well, or investment assets which pay you income. There are legitimate expenses incurred while earning these other forms of income that you can also claim.

    For example: self education expenses (this can be a little tricky, since it must relate to income you already earn); costs of subscriptions to trade journals or other publications (if you have investments, you could probably claim an annual subscription to an investment magazine for example); car expenses (for example: if your part time job involves driving to see clients - or perhaps you have an investment property, you can claim expenses for going to visit it for maintenance or inspections).
     
  15. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
    Posts:
    358
    Location:
    Sydney, NSW
    Sim mate, you my friend are the man!

    Wanna be my accountant? :p

    Thanks for all the info mate it's been a huge help and I'm beginning to grasp a decent concept on a lot of it. I'll probably re-read over the reply again a little later because I may have a few other minor questions but on the whole I think I'm good to go until tax time next year, in which case I'll most definitely be seeking an accountant, especially since I've got my own property now and am receiving rent, will have my own business as well as full-time work, tax time is gonna get a fair bit more complicated.

    One quick question tho;

    How does this work? This is something I'm quite interested in, because here's a scenario;

    For the Custom Cabling business I'll be buying large amounts of product to make the cables. For example I may buy several hundred feet of electrical wire.

    1. How does claiming this work? I imagine I would claim it as an expense?

    2. If It's less than $300 worth of materials would it simply be a write off? (30% claimable straight up) or if it were $300+ would it have to be depriciated? What if the effective life of the cable was only expected to be a year? (i.e. I bought a large amount expecting/hoping to sell it off within the year)

    Again, thanks so much for the responses, I'm beginning to understand a lot more now. I'll hopefully get around to reading that depreciation guide over the weekend.
     
  16. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    This is where my expertise pretty much dries up. I run services businesses which generally don't hold any stock, so I'm not completely sure how this is managed from a tax point of view.

    Perhaps one of our resident accountants or fellow business owners could add something here?