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Franchising and Tax

Starting and running a franchise business is same as starting and running any other small business. However, there are some additional things that need to be considered for the transactions between franchisor and franchisee. The person who grants the right to use a business under some brand name or trade mark and right to manufacture and distribute their products or services is known as franchisor.

The person who receives the right to use a business under some brand name or trade mark and right to manufacture and distribute the franchisor products or services is known as franchisee.

Franchisor needs to qualify some limits which are:


The Australian business number is a single identifier for all business that are dealing in tax with ATO and often dealing with other businesses, government departments and other agencies.

Franchisors need an ABN to register for GST and other taxes registration such as PAYG, fuel tax scheme etc.

Income tax

In most cases, payment received by franchisor from franchisee will be assessable income of franchisor for income tax purposes. Payments from franchisee generally include:

• Initial franchise fee.
• Franchise renewal fees.
• Promotion expenses.
• Transfer fees.
• Training fees.


Franchisor needs to report and sent GST collected to ATO. The franchisee will generally be able to claim a GST credit from ATO for the GST amount included in supplies listed above.

Franchise fees

The initial franchise fee or transfer fee taxpayers provide to the franchisor forms part of the cost base for their franchise business as their capital asset. As these fees are capitally invested in your business, franchisee does not subtract them as business expenses from their annual income tax.

Depending on the circumstances your franchise renewal fees may form part of your cost base. Any franchise renewal fees not included in your cost base may be deductible as a business expense and subject to the prepayment rules.

For more information on Franchising and Tax from ATO Website by clicking here.

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