Hiring parents as employee or contractor

[Deactivated] on 14/07/2014 - 17:15

Close relative of mine is a sole-trader and making about $150k taxable income/y.

Her parents recently retired so she need to provide food and shelter etc for them.

So instead of just spending extra $, she come up with a plan that hire them as employee or contractor, give some of her work. Such as cleaning her office and post some letters to her client etc and pay some compensation for it.

By that way, her parents can leverage $18k tax-free threshold and she can deduct some tax as well.

Is it sounds like a plan? If so, is there any threshold she can pay to her parents or there's no such thing?

Yup yup, I know about the family trust but her business is so far considered as PSI so her income cannot be transferred via trust.

Financial

Comments

  • kingsville on 14/07/2014 - 17:23

    Can you have employees and still be considered PSI?

    • [Deactivated] on 14/07/2014 - 17:38

      My question as well. I mean, a professional can have a personal assistant or such.

      Well maybe only as contractor if it's not acceptable.

  • cloudy on 14/07/2014 - 19:51

    Best to get professional advice I'd say. I think, my opinion, only, I'm no accountant, it's ok if the wage is considered fair at a arms length wage. Can't just pay someone 18k to post a few letters. There is a division, think it's part iva, that covers all schemes designed for the sole purpose of avoiding tax. So if it's a fair days work for a fair days pay, I don't see why not.

  • StewBalls on 14/07/2014 - 20:15
    +5

    Wait a year or so & she'll get $10k each for hiring them if they're over 50! ;)

    • timmypete on 15/07/2014 - 11:06
      +1

      …and yet anyone under 30 has to live for six months before they become eligible for unemployment benefits. This government has a bizarre method of making everyone bear the burden equally.

      • StewBalls on 15/07/2014 - 14:35
        +1

        You'll get no argument from me there…

        • timmypete on 15/07/2014 - 15:28
          +1

          Not to mention an unemployed woman under 30 having to apply for 40 jobs a month until the 8 month mark in order to be eligible for the second half of the year's benefits. Vastly different situation to the salary-dependant paid maternal leave handouts they took to the election. </rant>

  • Blockey on 15/07/2014 - 08:39
    +2

    Best to go see an accountant for advice… however:
    See https://www.ato.gov.au/Business/Personal-services-income/In-…

    A long way down the page there is information on "Accounting for payments to associates for non-principal work" which should answer your question.

    There are other areas you could look at as far as tax benefits go but that's really up to your accountant to discuss.

    • [Deactivated] on 15/07/2014 - 10:13

      Thanks for this. Sounds like they need to be contractor then.

      • Blockey on 15/07/2014 - 12:50

        It's not a matter of whether they are a contractor or not, it's about whether they do principal work.

        Office work like "cleaning her office and post some letters to her client" is very likely to be classified as non-principal work.

        • [Deactivated] on 15/07/2014 - 13:27

          That sounds weird. Coz working as a contractor is about the same circumstance as she pay $ to get cleaning service from professional cleaning company which she can get tax invoice and claim tax deduction based on it. The only difference here is family relationship and I can't see any special restriction regarding.

          Means, I don't think "Your business can't claim a deduction for salary or wages paid to an associate employee for performing non-principal work." applies when they operate as individual contractor.

          Am I missing something here?

        • Blockey on 15/07/2014 - 14:16

          @heingray:

          It sounds unfair (and I tend to agree that the rules are unfair) but there are specific PSI rules for this.

          See https://www.ato.gov.au/Business/Personal-services-income/In-…

          Payments to associates is much broader than just salary and includes:
          -remuneration such as a salary or commission
          -an allowance
          -reimbursing an expense
          -rent
          -interest on a loan

        • [Deactivated] on 15/07/2014 - 14:43

          @Blockey: Thanks for the link. Tho it still doesn't answer my question.
          All those examples and terms used in the page indicates only in case some form of compesation paid to an individual employee.

          I can see there is special rule applies for an 'associate' as oppose to 'arm's-length employee' in such case and is clearly explained in examples. e.g) wage and Super countribution

          However uncertainty remains whether this 'associate' status applies when payment paid to ABN or ACN as well or not.

          Also realised those chores that I mentioned might not fall under 'Deductions your business can claim against the PSI' although it can change. e.g) Advertising

          Yeap sounds like time to meet an accountant :S

        • Blockey on 15/07/2014 - 17:04

          @heingray:
          They are just examples, remuneration definitely includes contractor income for PSI purposes.

          Like I said there are other strategies you could look at (ie: arguing the parents are doing principal work) but it's definitely best to go see an accountant :)

  • chinabestdeals12 on 15/07/2014 - 15:59

    Why not just let your parents to have a rest?

    • [Deactivated] on 15/07/2014 - 16:24

      They are not my parents so it's not really my discretion. ;)

      Besides, they want to work a bit rather than just spend all the time resting but getting a non-professional part-time position as 50-60yo would be a real challenge and likely doesn't come up with much flexibility as they require.

      So even IMO, put them under some kind of safety net seems like a good idea where finance is not really the issue.

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