To start a family day care can be complicated. It is not just about the care that you will provide to children.
In order to start and run a successful family day care business it is important to consider what type of business structures are available as well as regulatory requirements. Your family day care scheme can assist you with the regulatory requirements which are specific to providing care however most family day care schemes will steer clear of providing any assistance in setting up a family day care business for tax purposes.
Choosing the right business structure upfront is important as it will determine your cost structure, the tax you will pay and whether your assets will be protected.
Your business structure will also determine your reporting requirements to the ATO. There are two structures discussed below. The sole proprietor structure is most common to run a family day care business.
For more information on available tax structures refer to https://www.ato.gov.au/Business/Starting-your-own-business/Choosing-your-business-structure/
A sole trader is the simplest, cheapest and most common business structure adopted to start a family day care business as it has few legal and tax formalities.
If you operate your business as a sole trader, you trade on your own and control and manage your business. You are legally responsible for all aspects of the business and debts and losses cannot be shared with other individuals.
Sole proprietors have a tax free taxable income threshold of $18,200.
As a sole proprietor:
- your individual Tax File Number (TFN) is used when lodging your income tax return
- you can apply for an ABN and use this number for all your business dealings
- you need to register a business name if you choose not to trade in your first name and surname
- you can register for Goods and Services Tax (GST)
- you pay tax at the same income tax rates for individual taxpayers
A company is a separate legal entity and carries higher set up and administration costs. A company provides some asset protection but directors can be legally liable for their actions and, in some cases, the debts of a company.
The money a business earns belongs to the company, not individuals.
A company pays income tax on its assessable income (profits) at the company tax rate (28.5%) and may be eligible for tax concessions. There is no tax-free threshold for companies.
Companies can pay their employees a salary and superannuation contributions.
If you have a company structure you need to take out worker’s compensation insurance if you employ a relief care educator or assistant. Worker’s Compensation Insurance is state dependent e.g. WorkCover Queensland.
A small proprietary company does not require an audit.
This blog should not be construed as financial advice and you should seek the assistance of an accountant to determine what is best in your specific circumstances.