A Business Guide to Australian Beauty Services

Starting a business in the beauty services industry allows you to turn a passion into a profession. However, building a successful enterprise requires understanding Australia's business, tax, and compliance frameworks. This guide provides a structured overview of the essential obligations for operators in the beauty services sector. All information reflects the regulatory environment applicable to the FY 2025–26 financial year.

From our experience at Baron Tax & Accounting, many new beauty professionals in Brisbane begin their journey as sole traders due to the simplicity and low initial cost. As their business and client base expand, a common and logical progression is to consider transitioning to a company structure to gain asset protection and optimise their tax position. This transition is a frequent point of discussion during our strategic client review meetings.

Industry Overview

How does a beauty services business typically operate?

In Australia, the beauty services industry is diverse, ranging from large, established salons in shopping centres to mobile therapists, home-based studios, and specialised clinics. The sector is characterised by a high proportion of small businesses, often operated by a single individual or a small, dedicated team.

For Brisbane-based businesses, this often means starting as a mobile service to cover a wide suburban area or operating from a dedicated space within a home. This approach minimises initial overheads like commercial rent, allowing the owner to build a client base and reputation before potentially expanding into a fixed commercial location.

What are the common business structures?

Choosing the right business structure is a foundational decision that impacts liability, tax obligations, and administrative requirements.

• Sole Trader: This is the most straightforward structure. The individual and the business are legally the same entity. All profits are taxed at the owner's personal income tax rate. The primary drawback is unlimited liability, meaning personal assets (like a home or car) could be at risk to cover business debts.

• Company (Pty Ltd): A company is a separate legal entity from its owners (shareholders). This provides crucial asset protection by creating a legal distinction between business and personal finances. The business pays tax at the corporate rate, which can be advantageous. However, companies have higher setup costs and more stringent annual compliance and reporting obligations with both the ATO and ASIC.

Things to Consider Before Starting

Thorough planning before launching is essential for long-term viability. This involves understanding the financial and regulatory landscape to build a solid foundation for your business.

What are the typical start-up costs?

Initial costs vary significantly based on the chosen operational model. Key expenses include:

• Specialised Equipment: Treatment beds, sterilisation units, LED lamps, laser machines, or microdermabrasion devices.

• Initial Product Inventory: Professional-grade skincare, waxes, polishes, and other consumables used in services and for retail sale.

• Commercial Lease & Fit-Out: For a fixed salon, this includes the rental bond, legal fees for the lease, and costs to configure the space to meet health regulations and branding requirements. A salon fit-out in a commercial precinct in Brisbane can represent a significant capital investment.

• Business & Brand Setup: Costs for business name registration, website development, and implementing an online booking and payment system.

What licences and insurance are required?

Compliance with industry regulations is non-negotiable in Australia to protect public health and safety.

• Licences: In Queensland, businesses offering 'higher-risk personal appearance services' such as cosmetic tattooing, micro-needling, or any procedure involving skin penetration require a specific licence from the local council. For a business in Brisbane, this means applying to the Brisbane City Council and adhering to their strict infection control and premises design standards.

• Insurance: * Public Liability Insurance: This is essential and covers your business against claims for injury to a third party (e.g., a client) or damage to their property at your premises. * Professional Indemnity Insurance: This protects you against claims arising from the professional advice or services you provide, such as an adverse reaction to a treatment.

Home-based, Mobile, or Fixed Location?

The operational model you choose will define your costs, flexibility, and compliance workload.

Operational Model	Advantages	Key Considerations
Home-Based	Low overheads, no commute time.	May require council approval. A clear physical separation between business and personal areas is necessary for tax claims and client privacy.
Mobile Service	High flexibility, ability to serve a wide geographic area.	Vehicle running costs and travel time must be factored into pricing. Equipment must be portable and transported safely.
Fixed Commercial Location	High visibility, more space for clients and staff, professional image.	Higher fixed costs (rent, utilities), obligations of a commercial lease, and more extensive council regulations.

Business Set-Up Steps

Once you have a business plan, the next phase is to complete the necessary legal and tax registrations to operate legitimately in Australia.

1. Apply for an Australian Business Number (ABN)

The ABN is a unique 11-digit identifier used by the government and other businesses. It is essential for invoicing, claiming GST credits, and other business-to-business transactions. You can apply for an ABN through the Australian Business Register (ABR). Operating without one may require other businesses to withhold tax from payments to you at the highest marginal rate.

2. Register for Goods and Services Tax (GST)

In Australia, you must register for GST if your business has a GST turnover (gross income minus GST) of $75,000 or more per year.

• Why it matters: Once registered, you must charge an additional 10% GST on your services and products. You can also claim back the GST included in the price of your business purchases.

• Practical caution: The $75,000 threshold can be reached faster than anticipated, especially if you sell retail products alongside services. It is crucial to monitor your turnover closely to ensure you register on time.

3. Register for PAYG Withholding

If you plan to hire employees—such as another therapist, an apprentice, or a receptionist—you must register for Pay As You Go (PAYG) Withholding. This system requires you to withhold tax from your employees' wages and remit it to the ATO on their behalf.

4. Open a Separate Business Bank Account

From day one, it is critical to keep your business and personal finances completely separate.

• Why it matters: A dedicated business account creates a clean audit trail for all income and expenses, simplifying record-keeping and tax preparation. For companies, mixing funds can compromise the asset protection offered by the corporate structure.

• In practice: All business income should be deposited into this account, and all business expenses should be paid from it. This discipline is the cornerstone of sound financial management.

Key Operational Considerations

Effective day-to-day management of finances is crucial for profitability and compliance. This involves a clear understanding of your income sources, expenses, and asset management.

What are the typical income streams?

Beauty businesses often have multiple revenue channels:

• Service Fees: Income from core treatments like facials, waxing, manicures, and cosmetic tattooing.

• Retail Product Sales: A significant secondary income source from selling skincare, makeup, or after-care products.

• Gift Vouchers & Pre-Paid Packages: These improve cash flow by receiving payment for future services.

• Cancellation Fees: A policy to charge for no-shows or late cancellations protects your business from lost revenue.

How are payments typically handled in Australia?

Clients in Australia expect a range of payment options. To appear professional and accommodate preferences, you should be equipped to accept:

• EFTPOS and Credit Cards

• Online payments (via a booking system)

• Cash

Meticulous records must be kept for all payment methods to ensure all income is accounted for.

What are the major expense categories?

Accurately tracking all legitimate business expenses is vital, as each one reduces your taxable income.

• Cost of Goods Sold (COGS): Products used directly in treatments and any retail products purchased for resale.

• Rent and Utilities: For a fixed salon location.

• Wages and Superannuation: The largest expense if you have employees.

• Marketing and Advertising: Costs for social media campaigns, website hosting, and other promotions.

• Insurance and Licence Fees: Annual premiums and registration renewals.

• Bank and Merchant Fees: Fees for processing EFTPOS and credit card transactions.

• Equipment and Tools: Smaller items may be expensed immediately, while significant purchases like laser machines are capital assets depreciated over time.

How should I manage business assets like vehicles or equipment?

Business assets are significant items purchased to generate income. This includes treatment machines, salon furniture, or a vehicle used for a mobile service.

Vehicle Logbook Method Example

Asset: Car used for mobile beauty services in Brisbane.
Action: Keep a detailed logbook for 12 consecutive weeks.
Calculation:
  - Total Kilometres Travelled: 5,000 km
  - Business-Related Kilometres: 4,000 km
  - Business-Use Percentage: (4,000 / 5,000) = 80%
Result:
  - You can claim 80% of all vehicle running costs (fuel, insurance, registration, repairs).
  - You can also claim depreciation on 80% of the vehicle's cost.

Tax and Reporting Obligations

Understanding your obligations to the Australian Taxation Office (ATO) is fundamental to running a compliant business. These responsibilities are mandatory and apply Australia-wide.

Income Tax and GST

Under ATO rules, you must report all your business income in an annual tax return. You can claim deductions for legitimate business expenses, and the resulting net profit is subject to income tax.

If registered for GST, you must also lodge a regular Business Activity Statement (BAS), typically quarterly for small businesses. On the BAS, you report total sales, GST collected on those sales, and GST paid on your business purchases. The net amount is then paid to or refunded by the ATO.

Payroll Obligations

If you employ staff, you have several key responsibilities managed through Australia's digital payroll system.

• Single Touch Payroll (STP): You must report employees' salary, tax withheld (PAYG Withholding), and superannuation information to the ATO each time you run payroll, using STP-enabled software.

• Superannuation Guarantee (SG): You are legally required to pay super contributions into your eligible employees' nominated super funds.

The Payday Super Mandate

A significant change to superannuation is coming. Effective from 1 July 2026, the 'Payday Super' rules will require all employers, including small businesses, to pay employee superannuation at the same time as their wages.

• How it works: The current system of paying super quarterly will be replaced. If you pay your staff fortnightly, you must also pay their super contributions fortnightly.

• Impact on business: This change will have a direct impact on business cash flow. Instead of accumulating funds for a large quarterly payment, businesses will need to have cash available to cover both wages and super every payday. Proactive cash flow planning is essential to manage this transition.

Fringe Benefits Tax (FBT)

If you provide non-cash benefits to employees outside of their salary, such as the personal use of a company car, you may have a Fringe Benefits Tax (FBT) liability. FBT is a separate tax paid by the employer with its own distinct reporting year and rules.

At Baron Tax & Accounting, our advisory services extend beyond standard compliance. After each quarterly BAS lodgement, we provide clients with a performance analysis based on their cumulative profit and loss statement. This includes benchmarking against local industry data and an assessment of ATO audit risk factors. Furthermore, during the annual tax finalisation process, we collaborate with clients to review the year's achievements and participate in designing strategic improvements for the year ahead.

Common Mistakes and Practical Risk Areas

Avoiding common pitfalls is critical to protecting your business and ensuring its long-term health. Many errors stem from a lack of awareness rather than intent.

1. Mixing Personal and Business Expenses

This is the most frequent and damaging error. Using a personal bank account for business transactions creates an accounting nightmare, making it impossible to track income and expenses accurately and leading to missed tax deductions. For companies, it can also "pierce the corporate veil," putting personal assets at risk.

2. GST Registration or Reporting Errors

Common mistakes include:

• Failing to register for GST when the $75,000 turnover threshold is met.

• Incorrectly claiming GST credits on GST-free purchases like bank fees or wages.

• Not reporting all income, especially cash sales, on the BAS.

3. Poor or Inconsistent Record Keeping

Maintaining organised and complete records is a legal requirement. Inadequate records make it impossible to prepare accurate tax returns and substantiate claims if the ATO conducts a review. A shoebox of receipts is not a compliant system.

4. Vehicle or Home Office Deductions Claimed Incorrectly

The ATO scrutinises these claims closely. To claim vehicle expenses, a compliant logbook is generally required to prove business-use percentage. For home office expenses, you must be able to demonstrate a clear calculation methodology and have records to support the costs claimed.

5. Cash Flow Issues Caused by Payroll and Payday Super Obligations

Mismanaging payroll tax and superannuation can lead to significant penalties. The upcoming Payday Super rules will place greater pressure on weekly cash flow, as businesses will no longer be able to use funds earmarked for super as working capital between quarterly payment dates.

ATO and Regulatory Notes

The ATO monitors specific industries to ensure a level playing field, and the beauty services sector is one of them. This is primarily done through data analysis and the use of small business benchmarks.

The ATO benchmarks are financial ratios derived from the tax returns of thousands of businesses in the same industry. They provide a guide to the typical relationship between reported turnover and key expenses, such as the cost of goods sold.

It is critical to understand that these benchmarks are not absolute rules. Being outside a benchmark range does not automatically trigger an audit. There are many legitimate reasons why a business's figures might differ, such as its location, specialisation, or business model. However, a significant and unexplained variance may prompt the ATO to ask for more information. Being aware of these benchmarks and maintaining excellent records allows you to confidently explain your business's financial position if required.

Summary

• Key Compliance Requirements: You must have an ABN, register for GST if your turnover exceeds $75,000, and register for PAYG Withholding if you hire staff. All payroll must be reported via Single Touch Payroll.

• Risk Areas: The most common risks include mixing personal and business finances, incorrect GST reporting, poor record-keeping, and mismanaging employee obligations like superannuation. The upcoming Payday Super rules present a significant cash flow challenge.

• Brisbane-Relevant Considerations: Businesses in Brisbane must check for specific licensing requirements with the Brisbane City Council, especially for higher-risk personal appearance services. Local market conditions can also influence start-up costs and operational models.

FAQs

What's the difference between an employee and a contractor?

An employee works in your business and is part of it. You direct their work, and you are responsible for their PAYG tax withholding, superannuation, and leave entitlements. A contractor is running their own separate business, usually has control over how and when they work, and is responsible for their own tax and super. Misclassifying an employee as a contractor can lead to significant penalties.

When does my home-based salon need to register for GST?

The GST registration rules are the same regardless of your business location. Registration is mandatory once your business turnover reaches or is expected to reach $75,000 in a financial year.

How do I properly claim my tools and equipment?

You must keep the original tax invoice for every business asset you purchase. The invoice should clearly show the supplier's details (including their ABN), the date, a description of the item, and the price (including the GST amount). Without this proof of purchase, the deduction can be disallowed by the ATO.

Is it better to be a sole trader or a company?

This depends on your individual circumstances. A sole trader structure is simpler and cheaper to set up, but offers no asset protection. A company provides asset protection and may offer tax advantages but involves higher setup and ongoing compliance costs. It is best to seek professional advice to determine the most suitable structure for your goals.

Do I have to pay super for casual staff?

Yes, under Australian law you generally have to pay superannuation for all eligible employees, including casuals, regardless of how many hours they work.

Next Steps

This article provides general information intended as an educational guide for businesses in the Australian beauty services industry. The tax and business regulations are complex, and their application depends entirely on your specific circumstances. Individual outcomes will vary.

Before making any financial decisions, it is advisable to seek professional advice from a qualified tax agent or accountant. They can provide guidance tailored to your business structure, operational model, and financial goals. For official information, you can consult the resources provided by the Australian government.

Official ATO Reference

For detailed information on the tax and superannuation obligations for small businesses, refer to the official ATO website.

• Australian Taxation Office (ATO) – Starting a new business

Baron Tax & Accounting Website: https://www.baronaccounting.com Email: info@baronaccounting.com Phone: +61 1300 087 213 Whatsapp: 0450 468 318