Eligibility

So you want to start a business. You’re bursting with energy but don’t know where to start. First things first, are you eligible to start a business?

You may form a business in Australia as long as you meet the following conditions:

• Over the age of 18
• Not bankrupt at the time of formation
• Have at least one director who is a Permanent Resident in Australia
• Have a physical location (registered office address) for the business in Australia

Some benefits of officially being a business include:

• You can apply for an Australian Business Number (ABN) to use in your business transactions. You’ll need to use the ABN entitlement tool to check your entitlement before applying.
• You can register a .com.au website once you have an ABN.
• You’ll have access to government information, services and concessions for business.
• You can establish a business identity when selling to customers and other businesses.
• You can claim tax deductions for business expenses against your taxable income.
• It may give you the flexibility to manage your time and work your own hours.

It’s important to understand the differences between a hobby and a business for tax, insurance and legal purposes.

Key questions to consider:

• Is the activity being undertaken for commercial reasons?
• Is your main intention, purpose or prospect to make a profit? Do you regularly and repeatedly undertake your activity?
• Is your activity planned, organised and carried out in a businesslike manner?

If you answered yes to most of these questions, you’re likely to be running a business, although it depends on your individual circumstances.

An independent contractor is someone who is self-employed and provides services to clients. This is also known as contracting or sub-contracting. Generally, independent contractors set up using the sole trader business structure and run their own business with their own Australian Business Number (ABN).

Independent contractors are paid for the results they achieve and are personally responsible if their business makes a profit or loss. They are usually engaged for a specific task and invoice the client when the task is completed.

They commonly work in the construction and IT industries, creative industries such as music and film, and as owner drivers and forestry contractors.

Personal services income (PSI) is income from your skills or efforts as an individual. You earn PSI when more than 50 per cent of the income you receive from a contract is for your skills, knowledge or efforts. You can receive PSI in almost any industry, trade or profession. However, common examples include financial professionals, IT consultants, engineers, construction workers and medical practitioners.

You don’t earn PSI if:

• less than 50 per cent of your income from a contract is for your skills, knowledge or efforts
• you receive income from selling or supplying finished goods, even if you made these goods
• you receive income from an income-producing asset, such as renting a vehicle or piece of machinery
• your income comes from licensing your intellectual property, such as a patent.

Independent contractors work under their own ABN, pay their own taxes and GST (if applicable) to the ATO. They also pay their own superannuation, although in some circumstances they may be entitled to paid superannuation entitlements if their employer provides all or most of the necessary materials and equipment needed to complete the work. Use the ATO Employee/contractor decision tool External link (opens in same window) to check.