Start Up Businesses

 
 

The PAM is quite restrictive on this issue and broadly requires the nominator must demonstrate that their business has been actively operating for a period of at least six months before lodging a nomination.

In detail the PAM  says this:

27.2 Start-up businesses

For the purposes of the regulatory criterion requiring active operation, a start-up business is one that has been in active operation for a period less than 12 months.

A business would be considered to have commenced ‘active operation’ once the ABN and/or ACN comes into effect and the entire infrastructure necessary for the activities of the business is in place and the business has commenced providing services to customers/clients.

The evidence that will be required to establish the date of commencement of active operation will be dependent on the type of business activity undertaken. For example:

  • a person operating a restaurant would be taken to have commenced active operation on the day on which the restaurant was officially opened to the public
  • a person providing a consultancy service would be taken to have commenced active operation on the day they were awarded their first consultancy contract.

A start-up business must provide business activity statements for each complete quarter from the time of commencement of operations up until the time the nomination is lodged.

he start-up business will not be determined to have been actively operating until the ABN and/or ACN of the business has been registered in addition to the business physically operating. The result of this is that, if a business has operated for a long period of time but has changed ownership or structure resulting in a new ABN and ACN being required, this business is now considered a start-up business.

In addition, they may provide a combination of the following documentation, depending on the nature of the business activity:

  • contract of sale relating to the purchase of the business (if the nominator purchased an existing business)
  • lease agreement relating to business premises
  • evidence of lease or purchase of machinery, equipment and furniture
  • contracts to provide services
  • evidence of employment of staff
  • business bank statements covering the period of operation
  • letter of support from the accountant to the business.

Example

Mr Y operates an Indian restaurant as a sole trader. The business is trading under the business name of “Spice Paradise” and opened its doors to customers 7 months ago. If Mr Y lodges a nomination, then in addition to demonstrating that his business is ‘lawful’, that is, legally established, he will also need to show the business is in fact ‘actively operating’.

To demonstrate this, Mr Y may be requested to provide documents such as:

·         business activity statements for the business for the 2 quarters that the business operated for

·         lease agreement for the business premises from which the restaurant operates

·         evidence of lease or purchase of kitchen equipment

·         account statements for the business bank account for the period of operation

·         contracts of employment for staff.

Here is what the regulation actually says in Reg 5.19(4)(b):

(b)      the nominator:

(i)      is actively and lawfully operating a business in Australia; and

(ii)      directly operates the business;

As stated elsewhere, for nominations there is no time of decision/time of application dichotomy.  Hence it is all determined at the point of approval ie not application.

There used to be a 6 month rule in the PAM but it is no longer there.

Whether a business is ‘actively and lawfully operating’ is a mixed question of law and fact to be determined at time of decision in relation to a nomination.

Barbara DavidsonStart Up Businesses