Understanding and meeting your tax and superannuation obligations is central to running a successful and sustainable franchise business.
Whether you’re considering becoming a franchisee, have recently joined a franchise network, or have been operating for many years, getting your tax right is a legal obligation and a key part of building a profitable and resilient business. Strong compliance practices not only help you avoid unnecessary costs and disruptions but also provide greater confidence when making decisions about growth and investment.
The Australian Taxation Office (ATO) is here to help you get your tax right from the start. Understanding your obligations, maintaining good records and staying informed, means you can focus more of your time on serving customers and growing your business.
Our small business focus areas
Most small businesses want to do the right thing. While many businesses meet their tax obligations, we continue to see common mistakes and areas where additional support is needed. We recognise the pressures franchise operators face, particularly in a challenging economic environment. Our role is to support businesses to get things right, while also ensuring a level playing field for those who meet their obligations.
The ATO has identified several focus areas for small business. Two of our current priorities are businesses that over-claim expenses and GST credits, and businesses that fail to report all of their income, particularly cash income.
These behaviours can place honest businesses at a disadvantage and undermine confidence in the tax system. For franchise operators, understanding these focus areas can help you avoid common mistakes and keep your business on track.
Over-claiming expenses and GST credits
One of the most common issues we see is businesses claiming deductions or GST credits they’re not entitled to receive.
To claim a business deduction, an expense must directly relate to earning your business income, must not be private in nature, and must be supported by valid records. Where an expense has both business and private use, only the business portion can be claimed.
Similarly, businesses registered for GST can generally claim GST credits for the GST included in the cost of goods and services purchased for the business. However, businesses cannot claim GST credits where GST was not included in the purchase price, and they cannot claim the GST amount as both a GST credit and an income tax deduction.
Some of the common errors we see include:
double dipping by claiming the GST amount as both a GST credit and an income tax deduction
claiming private expenses as business expenses
claiming GST credits where GST was not included in the purchase price
failing to keep adequate records to support claims.
Our compliance activities uncover cases where businesses deliberately inflate claims. In these situations, businesses can face audits, amended assessments, penalties and interest charges.
For franchise businesses, there can be a wide range of deductible expenses, including franchise fees, rent, utilities, wages, superannuation, inventory and operating costs. However, it’s important to ensure each claim is genuinely connected to your business and properly documented.
Cash income must be reported
Another key area of focus is businesses that use cash to avoid meeting their tax, employer and business obligations.
Many legitimate businesses continue to receive cash payments from customers. The issue arises when businesses fail to report cash sales, pay cash wages off the books, or use cash transactions to avoid GST, tax, superannuation or other obligations.
Businesses operating outside the system usually:
fail to report all sales
avoid issuing receipts
under-report income to remain below the GST registration threshold
avoid PAYG withholding, superannuation and other employer obligations
gain an unfair competitive advantage over your business if you are doing the right thing.
This behaviour can disadvantage employees who may miss out on superannuation contributions, leave entitlements, workers compensation protections and correct tax withholding. It also creates an uneven playing field for compliant businesses that meet all of their obligations.
Franchise businesses often operate in sectors where cash transactions remain common, including hospitality, retail and service industries. This makes accurate reporting particularly important.
Every dollar of business income must be reported, regardless of whether it’s received through cash, card, online payment platforms or bank transfers. Maintaining complete and accurate records of all sales helps ensure that your BAS and tax returns are correct.
The ATO uses sophisticated data and analytics, third-party reporting, industry benchmarking and community intelligence to identify businesses that may be under-reporting income. We also receive more than 1,000 tip-offs each week relating to dishonest business behaviours, many involving shadow economy activities and cash transactions.
Businesses that deliberately omit income can face significant adjustments, penalties and interest charges when non-compliance is identified.
The key message for franchise operators is simple: report all income, keep accurate sales records and ensure your tax reporting reflects the true performance of your business.
Good record keeping is good business
Strong record keeping sits at the centre of every successful business.
Keeping good records ensures you have the right information to meet your obligations, avoid mistakes and better understand your financial position.
You should keep records of all:
business income and sales
expenses and purchases
tax invoices and receipts
employee payments
super contributions
franchise-related fees.
These records must generally be kept for at least five years and should be in English or easily convertible.
Good records help you:
understand your financial position
manage cash flow
lodge accurate tax returns and BAS
support deductions and GST credit claims
reduce the likelihood of errors and corrections later.
Poor record keeping is a common factor in many compliance issues we encounter. Missing invoices, incomplete sales records and the mixing of personal and business finances can all create problems when it comes time to prepare returns or respond to reviews and audits.
For franchise operators, good record keeping is not just simply about compliance. It’s also about running a more informed and profitable business. When your financial information is accurate and up to date, you can make better decisions, identify trends earlier and plan more effectively for future growth.
Keep up to date
The ATO provides a range of free educational resources to help small businesses build their knowledge and confidence.
Our self-paced online learning courses cover topics including:
Small business benchmarks – compare your performance against similar businesses in your industry.
By investing time in understanding your obligations, you can reduce the risk of errors and make more informed decisions. Ongoing education also helps you stay up to date with any changes that may affect your business.
Build a strong and sustainable business
Accurate reporting, good record keeping and timely compliance with tax obligations are all part of running a sustainable and successful franchise operation.
The ATO’s focus on over-claimed expenses, incorrect GST credit claims and unreported cash income is ultimately about ensuring fairness. Businesses that do the right thing should not be disadvantaged by those seeking an unfair advantage.
By keeping accurate records, reporting all income, and using available tools and support, franchise operators can reduce compliance risks and focus on what matters most – building a successful business and serving their customers.
The ATO is committed to supporting franchise businesses every step of the way. Together, we can help maintain a strong, fair and competitive environment for Australia’s franchise sector.
Angela Allen is an Assistant Commissioner, Small Business, at the Australian Taxation Office. She is committed to supporting small business and continues to influence the end-to-end experience for small business taxpayers, prioritising education and transparency to help them get their obligations right from the start. Angela collaborates with other small business advocates, industry partners and government agencies to improve the small business experience. She is also passionate about investing in people, developing, and mentoring the leaders of tomorrow and inspiring others to reach their full potential.
