Tax and GST Planning Before Franchising in Australia

Franchising an existing business introduces payments that your current accounting system may never have handled. Joining the Australian franchising community as a franchisor means preparing to account for initial fees, recurring charges and other receipts correctly. Before accepting your first franchise payment, work with your accountant to establish how each payment will be invoiced, recorded and reported.

1. Map franchise payments before configuring accounts

Start with a payment schedule based on your proposed franchise arrangements. This is not an exercise in deciding how much to charge. Its purpose is to identify what money will change hands, which entity receives it and what the payment covers.

Include any proposed initial franchise fee, ongoing royalty, training charge, equipment sale, technology charge and contribution collected for a shared purpose. If your existing business will also supply products to franchisees, identify those transactions separately.

For each payment, record:

• The entity that invoices and receives the money.
• The goods, services or contractual rights supplied in return.
• When the payment becomes due and when it is expected to arrive.
• Whether it could be refunded, credited or adjusted.
• Whether a supplier or another group company receives any part of it.

Business.gov.au advises that payments received from franchisees will usually be assessable income and will also involve goods and services tax (GST). However, that general position does not settle the treatment of every receipt. Ask your accountant to classify each payment rather than applying one accounting rule to everything labelled a franchise fee.

2. Check the entity, registrations and GST treatment

An established business may already have an Australian Business Number and GST registration. Do not assume those arrangements automatically cover a newly created franchisor company or a separate entity supplying franchisees.

Give your accountant a diagram showing the proposed entities and what each will do. Match it against the names appearing in the franchise agreement, bank accounts and invoicing software. If one company grants franchise rights while another supplies stock, the accounting setup should reflect that distinction.

Ask your accountant to confirm:

• Which registrations each entity needs.
• The GST treatment of each category of supply.
• The appropriate GST accounting basis and reporting arrangements.
• When income should be recognised for tax purposes.
• How advance payments, instalments and refundable amounts should be treated.

Receiving cash, recording accounting revenue and recognising taxable income are not necessarily identical events. An initial payment covering several obligations deserves particular attention; its description alone does not determine its tax treatment.

Australian franchising is governed by the mandatory Franchising Code of Conduct, alongside laws including the Australian Consumer Law and tax legislation. Compliance with the Code does not replace tax compliance. Equally, a tax registration is not approval of your franchise model. Franchisors must also meet the applicable Franchise Disclosure Register requirements.

3. Align contracts, disclosure and invoices

Tax decisions need to appear consistently in the documents franchisees actually use. Have your franchise lawyer and accountant review the payment schedule together before the agreement and disclosure document are finalised.

Make clear whether quoted amounts include GST or whether GST is payable in addition. Check that your agreement, disclosure information, recruitment materials and sample invoices do not present contradictory totals. Australian law prohibits misleading or deceptive information being given to franchisees, so unclear tax wording is more than an administrative inconvenience.

Create sample invoices for an initial payment and a recurring payment. Ask the accountant to check the required tax invoice details, supplier identity, descriptions and GST calculations.

Also prepare a process for correcting invoices and issuing credits or refunds. A cancellation or payment adjustment should trigger an accounting review, not simply a bank transfer. The team needs to know who authorises the adjustment and who checks its reporting consequences.

4. Test the reporting process before launch

Run a practice transaction through your accounting system, from invoice creation to payment allocation and reporting. Use separate account categories where they help distinguish royalties, product sales and other receipts without creating unnecessary complexity.

Test an instalment, an overdue payment and a partial refund as well as a straightforward payment. Confirm that staff can reconcile amounts received against the correct franchisee and invoice.

Agree who handles bookkeeping, who reviews GST coding and who approves tax returns and business activity statements. Set review dates with your accountant, particularly when introducing a new charge or changing the entity making a supply.

Practical takeaway: Before collecting franchise payments, obtain an accountant-reviewed payment map, consistent GST wording and a tested invoicing workflow. These foundations make it easier to expand without carrying avoidable tax errors into every new franchise relationship.