- The upfront franchise fee is usually not deductible. The ATO treats it as part of the cost base of your franchise licence, which is a capital asset.
- Ongoing royalties, marketing levies, training fees and interest on business loans are generally deductible in the year you incur them.
- Renewal fees follow the same logic as the upfront fee: if they form part of the cost base of the licence, they are not deductible.
- You can usually claim GST credits on franchise fees, royalties and levies, provided you are registered for GST and hold a valid tax invoice.
- Selling, transferring or ending the franchise has CGT and GST consequences, so plan the exit before you sign.
“Can I claim my franchise fee?” is one of the first questions new franchisees ask. The honest answer is: some of it, but probably not the big upfront payment. How each payment is treated depends on what it buys you. Paying for the right to run the business is capital. Paying to run the business day to day is usually a deductible expense.
The upfront franchise fee
The ATO’s franchising guidance says the initial fee you pay to acquire a franchise (and a transfer fee, if you buy an existing franchise) forms part of the cost base of the franchise licence. The licence is a CGT asset, so the fee is not deductible as an ordinary business expense when you pay it.
That doesn’t make the fee useless for tax. Because it sits in the cost base, it reduces your capital gain (or increases your capital loss) when you later sell, transfer or end the franchise. Keep the invoice and the agreement for as long as you hold the franchise, plus the record-keeping period after it ends.
Watch the split. An “establishment fee” sometimes bundles several things, such as the licence itself, initial training, a launch marketing package or equipment. Ask the franchisor for an itemised invoice. Training and marketing parts may be deductible, and equipment may be depreciable, even when the licence part is not.
Ongoing fees you can usually claim
- Royalties (a percentage of sales or a fixed weekly amount) are generally deductible in the year incurred.
- Marketing fund contributions and levies are generally deductible.
- Training fees for you and your staff are generally deductible.
- Technology, POS and software fees charged by the franchisor are generally deductible.
- Interest on money borrowed to buy or run the franchise is generally deductible while the business is earning assessable income.
Renewal and extension fees
A renewal fee buys you a further term of the licence. The ATO says renewal fees are not deductible where they form part of the cost base of the franchise. Where they don’t, they may be deductible, but prepayment rules can spread the deduction across the period the payment covers. Ask your accountant to look at the wording of your renewal clause before you pay. Our guide to renewing a franchise agreement covers the commercial checks.
Fit-out and equipment
Fit-out, kitchen equipment, signage and furniture aren’t franchise fees, but they are often the largest part of the investment. These are usually depreciating assets. Eligible small businesses may be able to write off individual assets under the instant asset write-off threshold. See our guide to franchise fit-out and the instant asset write-off.
GST on franchise payments
If you’re registered for GST, you can generally claim GST credits for the GST included in your initial franchise fee, renewal fees, royalties, advertising levies, transfer fees and training fees, as long as you hold valid tax invoices. Royalties are often debited weekly by direct debit. Make sure the franchisor issues a compliant tax invoice or recipient-created statement for each period.
When you sell, transfer or exit
Selling or transferring a franchise is a CGT event. The amount you receive for the licence is compared with its cost base, which includes the original franchise fee and some transfer costs. Small business CGT concessions may be available if you meet the conditions. On the GST side, the sale may be GST-free as a supply of a going concern if both parties meet the requirements and agree in writing. More detail is in our guide to selling a franchise in Australia.
Quick reference
| Payment | Usual income tax treatment | GST credit? |
|---|---|---|
| Initial franchise fee | Part of licence cost base (not deductible) | Generally yes |
| Transfer fee on purchase | Part of licence cost base | Generally yes |
| Renewal fee | Cost base, or deductible subject to prepayment rules | Generally yes |
| Royalties | Deductible | Generally yes |
| Marketing levy | Deductible | Generally yes |
| Training fees | Deductible | Generally yes |
| Fit-out and equipment | Depreciation or instant asset write-off | Generally yes |
Treatment depends on your facts and the wording of your agreement. Confirm with your accountant before lodging.
Frequently asked questions
Are franchise fees tax deductible in Australia?
Ongoing fees such as royalties, marketing levies and training fees are generally deductible. The upfront franchise fee is generally not. The ATO treats it as part of the cost base of the franchise licence, which counts when you later sell or end the franchise.
Can I claim GST on my franchise fee?
If you’re registered for GST and hold a valid tax invoice, you can generally claim a GST credit for the GST included in the initial franchise fee, royalties, levies and training fees.
Is a franchise renewal fee deductible?
Not where it forms part of the cost base of the franchise licence. Where it doesn’t, it may be deductible, though prepayment rules can spread the deduction. Have the renewal clause reviewed before you pay.
What happens to the franchise fee when I sell?
It’s included in the cost base of the licence. That reduces your capital gain on sale. Small business CGT concessions may also apply if you meet the conditions.
Unsure how your fees should be treated? Book a 15-minute call or read more about our franchise accounting and tax work.
This article is general information only and does not take into account your personal circumstances. It is not tax, legal or financial advice. Speak with a registered tax agent before acting.
Sources
Sources checked November 2026. Rules change. Confirm current guidance before acting.
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