Accounting & tax
Franchise accounting and tax, done properly.
Annual financial statements, income tax returns, tax planning and business structuring for franchisees and franchisors — prepared by accountants who understand franchise fees, fit-out and the way franchise agreements work.
How is tax different for a franchise business?
A franchise pays tax like any other business, but several franchise-specific costs are treated differently. Ongoing royalties and marketing levies are generally deductible business expenses, while the initial franchise fee and transfer fees are capital — the ATO treats them as part of the cost base of the franchise rather than an immediate deduction. Fit-out, equipment and refurbishment costs follow depreciation and small business rules, and selling or ending a franchise can have capital gains tax and GST consequences. The right treatment depends on your agreement and structure.
What’s included
Year-end compliance, without the year-end scramble.
- Annual financial statements for your company, trust or partnership, prepared from reconciled books.
- Income tax returns for the business entity and, where needed, the owners.
- Tax planning before 30 June — timing of deductions, asset purchases, super contributions and distributions, reviewed against your cash position.
- Franchise-specific treatment of establishment, renewal, transfer, training and marketing fees.
- Depreciation schedules for fit-out, equipment and refurbishments.
- Structure reviews when you buy, expand, bring in a partner or plan an exit.
- ATO correspondence and lodgement program management.
Where franchise tax goes wrong
The issues we look for first.
Franchise fees claimed the wrong way
Treating the initial or transfer fee as an immediate deduction, or missing renewal fees that should be deducted. Each payment needs to be classified by what it buys.
Refurbishment costs lumped together
A mandated refit usually contains a mix of repairs, depreciating assets and capital works. Splitting them correctly affects both tax and cash flow.
Structures that don’t fit the plan
The entity that suited one store may not suit three, a business partner or a sale. Changing structure later can trigger tax costs, so it pays to plan ahead.
GST on franchisor charges
Royalties, levies and supplier rebates all have GST consequences. Reconciling them to franchisor statements prevents BAS errors.
Exit and transfer surprises
Selling or transferring a franchise can have CGT and GST consequences. A sale may qualify as a GST-free going concern — but only if the conditions are met.
Tax planning too late
Planning in July is a tax return. Planning in May, with your actual results, gives you options.
Franchise fees and tax: the general position
The ATO’s guidance on franchising sets out how common franchise payments are usually treated. In summary:
| Payment | Usual income tax treatment | GST |
|---|---|---|
| Initial franchise / establishment fee | Capital — part of the cost base of the franchise; not immediately deductible | Credit generally claimable if registered |
| Transfer fee (buying an existing franchise) | Capital — part of the cost base | Credit generally claimable if registered |
| Ongoing royalties and service fees | Generally deductible business expense | Credit generally claimable |
| Marketing / advertising levies | Generally deductible business expense | Credit generally claimable |
| Ongoing training fees | Generally deductible | Credit generally claimable |
| Renewal fees | Depends on the agreement — may form part of the cost base or be deductible (subject to prepayment rules) | Credit generally claimable |
This is a general summary, not advice for your business. The treatment of a particular payment depends on what your agreement says it is for, how your business is structured and the rules in force at the time. Source: ATO — Franchising and tax.
Accounting & tax FAQs
Franchise tax questions
Is the initial franchise fee tax deductible?
Generally no. The ATO treats the franchise establishment fee (and a transfer fee when you buy an existing franchise) as a capital investment that forms part of the cost base of the franchise. It can matter when you later sell or end the franchise.
Are royalties and marketing levies deductible?
Ongoing royalties, service fees and marketing levies paid to a franchisor are generally deductible business expenses, and GST credits are generally available if you’re registered for GST.
What business structure is best for a franchise?
There’s no single answer. Companies, trusts and partnerships each have different implications for tax, asset protection, finance and selling the business later. Many franchisors also have requirements about who signs the agreement and gives guarantees. We’ll compare the options for your situation, working with your lawyer.
When should I start tax planning?
Ideally from April or May, once you can see most of the year’s results. That leaves time to act on decisions such as asset purchases, super contributions and the timing of income and expenses.
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