11/12/2025 • 19 min read
Starting a Business: Tax Obligations New Founders Miss (2025)
Starting a Business: Tax Obligations New Founders Miss (2025)
Starting a business in Australia triggers multiple ATO obligations from day one, and new entrepreneurs most commonly miss (or delay) the “set-up” decisions that drive tax outcomes later—GST registration and correct tax invoicing, PAYG withholding and Super Guarantee for staff/contractors, Single Touch Payroll (STP), business vs private separation, record-keeping for deductions, and entity-specific rules such as Division 7A for companies. From an Australian accounting practice perspective, these omissions are the root cause of BAS errors, unexpected tax bills, penalties, and cash-flow shocks in the first 6–18 months.
What tax obligations do new Australian entrepreneurs most often miss?
New entrepreneurs most often miss obligations that are operational (monthly/quarterly) rather than annual, because the business feels “too small” early on. In practice, the ATO’s compliance model is built around ongoing reporting, accurate withholding, and substantiation.
- GST registration and correct GST treatment (including tax invoices and adjustments).
- BAS/IAS reporting and due dates (and aligning accounting periods to reporting).
- PAYG withholding registration once wages are paid (even to a working director).
- STP reporting for employees (and often payroll set-up generally).
- Super Guarantee (SG) timing and scope (including contractors paid “wholly or principally for labour”).
- Correct worker classification (employee vs contractor).
- PAYG instalments once the ATO issues an instalment rate/amount.
- Fringe Benefits Tax (FBT) exposure (cars, entertainment, reimbursements).
- Division 7A compliance for company owners using company money.
- Record-keeping and substantiation (logbooks, home office, travel, mixed-use assets).
- State taxes and registrations (especially payroll tax once thresholds approach).
- Industry-specific obligations (fuel tax credits, WET/LCT, etc., where relevant).
Authoritative basis: The ATO sets out registration and ongoing obligations across GST, PAYG withholding, super, and reporting in its guidance for businesses, and the legal framework is primarily contained in A New Tax System (Goods and Services Tax) Act 1999, the Taxation Administration Act 1953 (administration/penalties), the Income Tax Assessment Acts, and superannuation legislation.
When do you actually need to register for an ABN, GST, and PAYG?
You need to register based on what you do and your turnover—not on whether you “feel established”.
Do you need an ABN from day one?
You generally need an ABN when you are carrying on an enterprise (GST law concept) and dealing with customers/suppliers in a business capacity. The ATO’s ABN rules focus on whether activities have a commercial character and repetition (not just a hobby).- A sole trader starts invoicing clients for services and buying tools/software: an ABN is typically required immediately to avoid withheld payments and to issue invoices properly.
- Your GST turnover is $75,000 or more (or projected to be), or
- $150,000 or more for non-profit bodies.
- Founders track cash receipts only and ignore signed contracts or imminent work that pushes projected turnover over the threshold, leading to late registration and backdated GST.
ATO reference: ATO guidance on GST registration thresholds and “current and projected GST turnover” explains the $75,000 test and timing expectations.
- Employees’ wages, or
- Director fees, or
- Certain payments where withholding is required (e.g., where an ABN is not quoted in some cases).
ATO reference: PAYG withholding obligations and withholding from payments to employees are set out in ATO employer guidance and the Taxation Administration Act 1953 schedules.
How do BAS and IAS obligations catch new businesses out?
BAS/IAS is where “small mistakes” become recurring compliance failures, because errors compound across quarters.
- Lodgment cadence: quarterly BAS vs monthly GST reporting vs IAS cycles.
- GST coding discipline: mixed supplies, GST-free, input-taxed, and private-use apportionment.
- Tax invoice rules: claiming input tax credits without valid documentation.
- Adjustment events: refunds, discounts, bad debts, and change-in-creditable-purpose adjustments.
- Cash vs accrual GST accounting choice: misalignment between bookkeeping method and BAS reporting.
- A new consultancy registers for GST and issues invoices late in June but receives payment in July. If using accrual GST, GST is attributable to the earlier period; if using cash basis, it follows receipts. Incorrect setup often creates “missing GST” in the first BAS.
ATO reference: GST attribution rules and tax invoice requirements are detailed in ATO GST rulings and guidance under the GST Act framework.
Why is “employee vs contractor” still the biggest payroll tax risk?
Worker classification is one of the most litigated and reviewed areas because it affects PAYG withholding, super, leave entitlements, and sometimes payroll tax.
- Treating regular, controlled workers as contractors because they have an ABN.
- Not applying super to contractors who are paid mainly for labour.
- Not maintaining written agreements aligned to the actual working arrangement.
Legal basis: The classification tests rely on common law principles and High Court authority, applied by the ATO and Fair Work; super obligations are governed by the Superannuation Guarantee (Administration) Act 1992, and the ATO publishes detailed guidance on contractors and super.
- A tradie engages a “subcontractor” who works set hours, uses the business’s tools, and cannot delegate. The arrangement is likely employment-like. If super and PAYG were not withheld, liabilities can be backdated with interest and penalties.
What superannuation obligations do founders miss (and why are the penalties severe)?
Super is frequently missed because payments look like “just another supplier invoice,” especially for contractors. The cost of getting it wrong is high because the Super Guarantee Charge (SGC) is not simply unpaid super—it includes interest and an administration component, and it is non-deductible in many cases.
- Not paying SG quarterly by the due date.
- Assuming contractors are never eligible.
- Ignoring super on certain allowances/ordinary time earnings issues (fact dependent).
ATO reference: ATO Super Guarantee guidance explains eligibility, due dates, and SGC consequences.
How does Division 7A become a surprise tax bill for company founders?
Division 7A is routinely missed by new company owners because they treat the company bank account as interchangeable with personal funds. Under Division 7A, certain payments, loans, or forgiven debts by a private company to a shareholder (or associate) can be treated as unfranked dividends, unless managed properly.
- Paying private expenses from the company account.
- “Temporary” director loans with no documentation.
- Year-end journals attempting to “fix” drawings without a compliant loan agreement.
Legislative basis: Division 7A is contained in Part III Division 7A of the Income Tax Assessment Act 1936 and supported by ATO guidance and interpretative decisions.
- A founder uses the company account to pay personal rent and credit cards throughout the year. If not repaid or put under a complying Division 7A loan arrangement by the relevant time, the amount can be deemed a dividend and taxed accordingly.
MyLedger relevance (practice workflow): MyLedger includes automated working papers and Division 7A management, including MYR calculations using ATO benchmark rates, designed to reduce end-of-year “scramble” risk.
What deductions and record-keeping rules do new businesses get wrong?
New businesses most often fail on substantiation, not eligibility. The ATO expects records that demonstrate the expense was incurred, relates to earning assessable income, and is appropriately apportioned for private use.
- No separation of business and private transactions, making apportionment unreliable.
- Home office claims without a defensible method and records (hours, area, usage).
- Motor vehicle claims without a logbook (where required for the chosen method).
- Instant asset write-off assumptions without checking eligibility and timing for the relevant year.
- Claiming GST credits incorrectly on private or non-creditable purchases.
Legal basis: General deduction rules are in section 8-1 of the Income Tax Assessment Act 1997; substantiation and specific deduction regimes apply depending on the category of expense.
- A founder buys a laptop used 60% for business and 40% private. Without evidence and a consistent method, the ATO may disallow part of the deduction and GST credits.
When do PAYG instalments apply, and why do founders get cash-flow shocks?
PAYG instalments catch founders by surprise because they feel like “prepaying tax,” and they often start after the first profitable tax return or when the ATO issues an instalment notice.
- Budgeting for instalments once the ATO issues an instalment rate/amount.
- Varying instalments appropriately when profits drop (and managing penalty risk if varied incorrectly).
- Aligning instalments with BAS to avoid a “double hit” of GST and instalments in the same quarter.
ATO reference: ATO PAYG instalments guidance outlines how rates are set and when variations are allowed.
What ATO and tax reporting obligations are often missed in the first hire?
The first hire triggers employer systems, not just payroll.
- STP enablement and reporting (including pay events and finalisation).
- Super fund choice and stapled super procedures (as required).
- Fair Work compliance (not an ATO item, but operationally linked).
- Workers compensation insurance (state-based).
- Payroll tax monitoring as wages grow (state-based thresholds).
ATO reference: The ATO’s STP and employer obligation pages set expectations for reporting and super processes.
How do you set up a “first 90 days” tax compliance checklist for a new business?
A 90-day checklist should be implemented immediately because it prevents backdated obligations and rework.
- Confirm structure (sole trader, partnership, trust, company) with tax objectives documented.
- Register correctly:
- Set up accounting method and controls:
- Implement record-keeping:
- Set lodgment governance:
- Run a monthly compliance review:
How does automation reduce missed obligations compared to Xero, MYOB and QuickBooks?
Automation reduces missed obligations by enforcing GST treatment, accelerating reconciliation, and generating working papers that otherwise remain manual and error-prone.
- Reconciliation speed:
- Working papers:
- ATO integration accounting software depth:
- Practice pricing model:
If the operational risk is “missed obligations,” the control point is not just the ledger—it is the reconciliation workflow, ATO-linked visibility, and the ability to standardise work papers at scale.
What are real-world examples of “missed obligations” and how they play out?
These scenarios reflect common matters addressed in Australian accounting practices:
- Late GST registration: A founder crosses the $75,000 threshold and continues issuing invoices “GST-free.” The ATO can require GST to be remitted, often forcing the business to fund GST out of margin if it cannot reissue invoices.
- Contractor treated as non-super: A marketing assistant invoices weekly under an ABN but works under direction and is paid mainly for labour. Super is later assessed, and SGC applies.
- Division 7A drawings: A company pays personal expenses throughout the year. At year end, the accountant discovers a debit loan account; without a complying arrangement, deemed dividends may arise.
- BAS errors due to poor coding: Private expenses coded to GST categories create overstated input tax credits. ATO review leads to amendments, interest, and governance scrutiny.
Next Steps: How Fedix can help reduce missed tax obligations
Fedix helps Australian accounting practices and multi-client accountants reduce “missed obligation” risk by automating the workflows where errors start—bank reconciliation, GST enforcement, and working paper generation.
- Use MyLedger AutoRecon to reconcile and code transactions with AI-assisted categorisation (typically reducing reconciliation from 3–4 hours to 10–15 minutes per client).
- Apply GST enforcement and mapping rules to standardise BAS coding across clients.
- Generate automated working papers (including BAS reconciliation and Division 7A automation with MYR calculations) to reduce spreadsheet dependency.
- Leverage ATO integration to pull client details, lodgment history, due dates, and ATO statements/transactions to align accounting outcomes to ATO data.
Learn more at home.fedix.ai and assess whether MyLedger is the most practical Xero alternative or MYOB alternative for an automation-first Australian compliance workflow.
Conclusion
New Australian businesses most often miss tax obligations that operate continuously—GST/BAS discipline, PAYG and super set-up, worker classification, Division 7A governance for companies, and substantiated record-keeping. The ATO’s framework is designed around timely reporting and evidence, and late corrections are typically expensive. A practice-grade approach combines early registration decisions, documented processes, and automation that makes compliance the default outcome rather than an end-of-year repair job.
Disclaimer: This content is general information for Australia as of December 2025 and does not constitute tax or legal advice. Tax outcomes depend on specific facts and may change with ATO guidance, case law, or legislative amendment. Advice should be obtained from a registered tax agent or qualified professional for your circumstances.