Thanks for all the valuable advice everyone.
At this stage, I personally think a Pty. Ltd. company would be a bit excessive for what we are wanting to do. I guess the question remains, if we start this off as a "hobby", which is essentially what it is and it becomes successful and demand for services increases beyond that hobby level, is it possible to then move to a formal partnership and then later a company if demand keeps growing?
Talk to your accountant and read the ATO website don't take my advice. But essentially if you are doing business with other businesses you need to be registered and get an ABN as a minimum.
Trading outside of a business you can deal with businesses casually as a supplier but it's limited to $75. I've only ever done this once as I sold a retail store a small amount of stock which was unrelated to the business I was in and I don't think it's very common.
To charge GST you need to be registered and people will also ask for a GST invoice/receipt if you look like a business (as mentioned find it odd if you're not). There are tax advantages being GST registered.
There are also tax advantages running a business from home. You may be able to claim expenses and losses. For some business you can offset this against person income tax, rent and mortgage.
There is generally a requirement that your business must turn a profit at some point. i.e. your business was established to generate income. If your business is running at a loss continually year on year the ATO will likely step in. The exception being losses generated by investments and you have healthy income. Or at least that was the way it was explained to me, if you look like a sinking ship I'm sure the ATO will let you know.
The thing that will instantly flag you as a business is advertising like one. Not sure about now but in the past I know the ATO used to troll the yellow pages for tax evaders. They check bank accounts and for online activity as well.
When your business starts is largely up to you but you might be automatically considered a business by the ATO when you do business like activity. Say for instance you apply for the Microsoft BizSpark or WebsiteSpark Program, or you share income among your "partners".
Just sitting down and designing something with friends without any purchases, expenses, transactions or income does not necessarily constitute a running business. When your activity is planning to generate income from work (collaborating with others is a big factor) as soon as you're doing transactions the whole game changes and it's regarded as being "in business" so you need to be registered (or be an employee of someone elses) for tax purposes.
Services are regarded the same as physical goods. Buying and selling a couple of cars you restored for a small profit as a hobby is likely fine. Doing remote support jobs for a flat rate fee will likely be seen as a business activity even if for smaller gain.
My advice is read up on how startups fail, and best practices forming partnerships. It's not that expensive either forming a company if you shop around. It sounds like there might be two or three of you involved so far (not that I recommend forming a company with partners) but another way of looking at it is you can split expenses multiple ways lol
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