Help! Anyone with small business knowledge needed

bindi · 26-05-2005, 09:43 AM

Hi all,

I have a few questions regarding small business and the hiring of employees.

My hubby is contracted to a company atm. He also has a registered business. Are there any tax advantages to the company contracting the work to hubby's business rather than to him directly? And if he did that, would that mean that all the wages the business pays to him are a tax deduction?

I am about to embark on a small business management course but I need to know this stuff now.

Any ideas anyone?

Ta!

EA2BA · 26-05-2005, 09:51 AM

Pretty sure Yes. if he does have a business and the car and everything go under the bussiness you can save alot on tax, and you have to fill in that sub-contract form thing, from what I have seen you get all the money from the employer and tax becomes your problem to sort out.

bindi · 26-05-2005, 09:59 AM

My other question (forgot to post it) was that I had heard somewhere that you can't get all your money from one source when you contract yourself through your business. Is that true? Something like an 80/20 split?

Thanks for the info Dellboy... imagine claiming all the money spent on travel...

tickford2001 · 26-05-2005, 10:02 AM

Did you fill out a contract for the sub-contracted term and conditions for the the work? This should outline the expected outcomes of the agreement.

XRchic · 26-05-2005, 10:03 AM

Hi Bindi

From what you are saying, your hubby has his own business and he would prefer to have his company work for someone than himself directly? IF that is what you are thinking, it is technically called Alienation of Personal Services Income. It means that as a company/business, your hubby is going to pay less tax on his earnings as the earnings are filtered through the company, which pays less tax than an individual. The ATO crack down on Alienation, especially in the case where there the "business" is a single person.

The tax deductions are significantly higher when you are working as a business, as you can deduct all sorts of business related costs as a contractor, as opposed to an employee. Contractors can claim a lot more for motor vehicle and travel expenses, home office expenses, mobile phones and that sort of thing - employees are much more limited.

I have just written a fairly large research paper for work, on employees and contractors and there is a large section on Alienation of Personal Services Income. Let me know if you think it would be of any use to you and I can email it to you.

Hope his helps.

Cheers

Jac

4.9 EF Futura · 26-05-2005, 10:11 AM

Quote:

Originally Posted by bindi

Hi all,

I have a few questions regarding small business and the hiring of employees.

My hubby is contracted to a company atm. He also has a registered business. Are there any tax advantages to the company contracting the work to hubby's business rather than to him directly? And if he did that, would that mean that all the wages the business pays to him are a tax deduction?

I am about to embark on a small business management course but I need to know this stuff now.

Any ideas anyone?

Ta!

Geez... stretchin my memory out a bit now... did a fair bit of SB stuff at uni (great for a banking degree, lol)

The tax advantages wouldnt be huge...

i.e. current scenario... hubby is paid for contracting work and taxed at personal tax rate - 30% or 42% or 47% depending on $$$$.

Through the business.... the business would be paid for hubby's contracting work, the business would then pay hubby (either PAYE wages or by hubby taking drawings from business' profit). The business would only pay 30% tax on profit, but this is AFTER paying hubby... whatever the business pays to hubby will still be taxed at hubby's personal tax rate...

EDIT: Although i'm not sure if this applies to a sole trader or partnership, maybe only incorporated entities? Xrchic?

Having said this, there may be some advantages from a GST perspective. i.e currently if hubby buys himself tools or a new car or whatever, the GST is paid to the supplier - hubby ends up flipping the bill. But if going through the business, you would charge GST (i think?) and have GST credits to offset all the GST you pay on buying stuff for the business....

Might want to consider accounting fees for GST Business activity statements etc, although this would all be a deduction from business' income...

Not sure on the 80/20 rule sorrty, sounds like an accountant's question...

XRchic · 26-05-2005, 10:55 AM

Quote:

Originally Posted by 4.9 EF Futura

Geez... stretchin my memory out a bit now... did a fair bit of SB stuff at uni (great for a banking degree, lol)

The tax advantages wouldnt be huge...

i.e. current scenario... hubby is paid for contracting work and taxed at personal tax rate - 30% or 42% or 47% depending on $$$$.

Through the business.... the business would be paid for hubby's contracting work, the business would then pay hubby (either PAYE wages or by hubby taking drawings from business' profit). The business would only pay 30% tax on profit, but this is AFTER paying hubby... whatever the business pays to hubby will still be taxed at hubby's personal tax rate...

EDIT: Although i'm not sure if this applies to a sole trader or partnership, maybe only incorporated entities? Xrchic?

Having said this, there may be some advantages from a GST perspective. i.e currently if hubby buys himself tools or a new car or whatever, the GST is paid to the supplier - hubby ends up flipping the bill. But if going through the business, you would charge GST (i think?) and have GST credits to offset all the GST you pay on buying stuff for the business....

Might want to consider accounting fees for GST Business activity statements etc, although this would all be a deduction from business' income...

Not sure on the 80/20 rule sorrty, sounds like an accountant's question...

No, it doesnt only apply to incorporated entities. Can be a trust, partnership or a company.

An accountant for doing BAS and for other advice could definitely be worthwhile too and yes, it would be deductible.

And yes, re GST, if you are "carrying on an enterprise" you can claim input tax credits on the things you buy for the business, the price of which includes GST.

XRchic · 26-05-2005, 10:59 AM

Quote:

Originally Posted by bindi

My other question (forgot to post it) was that I had heard somewhere that you can't get all your money from one source when you contract yourself through your business. Is that true? Something like an 80/20 split?

Thanks for the info Dellboy... imagine claiming all the money spent on travel...

Bindi, there is actually some info on the 80% rule in the paper I sent you. If thats what you mean.

26-05-2005, 04:16 PM

As a Subcontractor, you don't have to have 80/20 BUT if you draw a wage, as a sub-contractor, you are not a sub-contractor. You are deemed an employee. Sub-Contractors wages vary greatly due to work availability, seasonal change and job worth. This has to be taken into account when 'paying' yourself. I had the ATO grill us for weeks and they pick up on the slightest things. Even paying someone an even amount of money, like $100/$200 or the same amount of money for concecutive days, is deemed a wage. If you are an employee, you have to get paid super, tax, holiday, sickness, long service etc etc. But the tax writeoffs for hubby aren't fantastic for wage based job.

Sub-Contractors have to invoice the Contractor each pay schedule, and on it has to be a job rate, not an hourly rate. The job rate can't be for 'x' amount of $$ per day, or week, more like 'x' amount for each brick laid or m2 of work done. Sub-Contractors cannot really get paid an hourly rate, Some do atm, but the ato will soon crack down on this, and deem Subbies being paid wages are employees, full stop..