If you are thinking of having a franchise business, then you should have your single identifier number, commonly called Australian Business Number that is often dealt with other businesses, tax offices and agencies. With the ABN registration, you may be required to register for GST, PAYG withholding, etc.
The initial franchise fee you pay to the franchiser is not deductible as a business expense. However, it forms the cost base for the franchise business as your capital asset. If you pay renewal fee as a running business then it could be deducted as a business expense and subject to prepayment rules.
Been in a franchisee business, business often pays ongoing royalties, interest payments or levies to the franchiser, these payments are deductible in the financial year you incur them as these are a continuous expense in the running of the business.
If you have paid any training expense to start the business, then you can also deduct those expenses.
If your franchiser is Goods and Services Tax (GST) registered, then you can claim GST credit on the payments that you have made to the franchiser. Payments include
- Initial Franchise Fee
- Franchisee Renewal Fee
- Marketing Fee
- Training Fee
Termination of Franchisee
When the business transfer the franchise fee or terminate a franchise then the business needs to consider Capital Gain Tax (CGT) and GST consequences.
A capital gain or capital loss on an asset is the difference between what cost of business to obtain an asset and payment received to dispose of it.
If you make capital gain then you have to pay capital gain tax in the same income year. However, if your disposable asset value is less than the value of the asset then you have made a capital loss, which will not reduce the income tax but will be carried forward as the capital loss to deduct it against a capital gain in future years.