Franchise tax basics: what to ask your accountant
Franchise tax treatment is specific to your situation. This is an orientation to the questions to raise, not tax advice, always confirm with a registered tax agent.
How is a franchise taxed in Australia?
The questions to raise with your accountant
- How is the initial franchise fee treated for tax, and over what period?
- Are the ongoing royalty and marketing levy deductible business expenses?
- How does GST apply to the initial fee and the ongoing fees?
- Which ownership structure (sole trader, company, trust, partnership) suits my situation and risk?
Why structure matters
The structure you buy the franchise through affects tax, liability and how you can bring in partners or eventually sell. It is much easier to set up the right structure at the start than to change it later. This is a decision to make with your accountant and lawyer together, before you sign, because it interacts with both tax and the franchise agreement.
Keep records from day one
Whatever the treatment, good record-keeping makes tax simpler and cheaper, and it is also what makes the business easier to value and sell later. Keep the fee documentation, agreement and financial records organised from the start, and give your accountant the disclosure document so their advice reflects the actual fee structure.
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Frequently asked questions
Are franchise fees tax deductible in Australia?
It depends on the fee and your circumstances. Ongoing fees like royalties and the marketing levy are treated differently from the one-off initial fee, and outcomes vary by situation. This is general information, not advice, confirm the treatment of each fee with a registered tax agent.
Does GST apply to franchise fees?
GST commonly applies to franchise fees, but how it applies to the initial fee versus ongoing fees depends on the specifics. Ask your accountant to confirm the GST treatment for your agreement rather than assuming.
What business structure is best for a franchise?
It depends on your tax position, liability and plans for partners or sale, common options are sole trader, company, trust or partnership. Decide it with your accountant and lawyer before signing, as it is much easier to set up correctly than to change later.
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