Hi
I am currently contracting. I am thinking of setting up a company (yes, to save some tax).
Anyone would like to share their experiences. Any step by step guide or does and don'ts. Is it worth to setup or just go with payroll company.
Excuse me if discussed already.
Thanks.
Any guide to set up? Also what kind of invoices I need to manage, are they need to in my name or company name ?
I work in IT. Can I use public transport receipts ? Also home internet as I work from home sometimes.
Any work you do under the business, you will need to create an invoice for the client to pay. The invoices will be under the company name.
You can expense public transport receipts if it is from your office address to the customer location. It gets grey very quickly if your office address is your home address because as an individual, you cannot claim to and fro your main office as an expense.
If you are an IT contractor on PSI, then I'm pretty sure you won't be able to expense public transport receipts as the client location would be considered your main address of work.
Talk to an accountant. Most accountants will provide first meeting for free.
Some of the things you need to do:
1 - Setup a Pty Ltd company (with GST registration, ABN, ACN) ~$550 one time
(I used https://company123.com.au/)
2 - Setup a Bank Account for Company
3 - Get Public Liability, Professional Indemity, Workers Compensation
(I used https://www.bizcover.com.au/ with AIG for PL and PI ~$670/yr and Allianz for WC ~$385/yr)
4 - Get accounting package to help management
(I get Xero Premium 5 for the ability of Super Stream $60/month)
5 - Claiming public transport https://www.ato.gov.au/individuals/income-and-deductions/ded…
6 - Home Internet https://www.ato.gov.au/individuals/income-and-deductions/ded…
btw, all these expenses (company setup, PL, PI, WC, Xero) are offset from your company profit ;)
Thanks.
I have more questions, :) , how does company profit calculated ? As an IT professional I won't be having much of expenses. Any suggestions about paying your wife as a secretary.
Company profit = contacting pay - expenses
Yeah my wife is not working, so I pay her ~$20k a year as a secretary / clerk.
If you setup a home office, you can claim reasonable deductions (but I'm not qualify to advise you fully on this):
- electricity
- water
- gas (you need to heat up your office during winter and wash your hands with warm water after going to the office toilet?)
- Internet
- phone / mobile
- refreshment (mackers, kfc, anyone?)
- printer, paper, ink catridges
- toilet paper, soap, cleaning equipments
- flowers (to put on your secretary's desk)
Other things you may be able to claim:
- Sell your car to the company and let the company pay for the rego, insurance, maintenance (but I think you have to make sure that you use that solely for business purposes)
- Renovate your home office with a nice sofa?
- Get yourself a laptop / phone (iPhone 8?)
- If you spend $20k quick (before 30 June 2017) on assets, you can write off entirely for this year https://www.ato.gov.au/Newsroom/smallbusiness/Lodging-and-paying/Instant-asset-threshold-increase-to-$20,000-now-law/
Really at the end of the day, if it is "related" to your business expenses, and you can justify it, you can claim for deduction.
Again, just my personal opinion, I am not a qualified tax agent or accountant.
@sly:
Thanks really helpful. I am planning to do it from next financial year, so gathering all information.
Since you work in IT, I would say there's a pretty high chance that you're just working as a typical IT contractor? If so, you'll probably fall under PSI rules(https://www.ato.gov.au/Business/Personal-services-income/), basically negates pretty much most of the benefits of working through your own company, paying your wife as a secretary, etc..
Remember, it's a self-assessment regime. You can tax deduct anything you want, pay anyone as much as you want, but if you get audited, you better make damn sure that you've followed the ATO rules or they'll rip you a new one.
Speak to a qualified accountant, mention PSI, etc.. See what they say. They can advise you, but if you get a dodgy accountant who lets you do whatever, at the end of the day, it's still you that's signing the tax return, etc. so you'll be responsible.
@Kenb0: So as per PSI, even if I keep I my wife as secretary and pay her, it will be counted as my income?
Is it worth only when you have multiple contracts at time.
If you're under PSI, then you can't really pay your wife from your contract earnings as it'll be considered your PSI income.
to make full use of working through a company/trust structure, you really need to be able to get away from being assessed as PSI. There's a flowchat/pdf on the ATO website which you can step through to see what gets determined as PSI, wtc.
@Kenb0: even if I have multiple contracts at a time ?
What if me and my friend work under this company.
find the PSI pdf/flowchart and follow that for the different scenarios you're thinking about. think you'll find that particular scenario you're asking about is covered.
If both of you are working as contractors, it would still be considered a PSI situation with the income of the contracts directly attributable to one of you.
I also use Xero for payroll and it's super easy, including annual submission of payment summaries to ATO & superannuation payments.
To get the full benefits of a company, you need to be running a "real" company. Some of the tests the ATO uses to determine this.
1) The nature of the contract - is it a time & materials contract or is it a fixed deliverable contract.
2) Do you have the ability to subcontract the work to others or does the contract specifically say that you are doing the work.
3) Is the company actively looking for more business - this could be through a website.
4) Does the company have more than one customer and is no customer responsible for more than 80% of the revenue.
As an IT contractor, it is still beneficial to setup a company as there are some expenses that you still can claim - but you cannot do things like pay your wife.
In my first year as a company, I was classed as a PSI and I think my expenses were like $10,000 for a $300K income. But my plan was to run a proper company and have employees and multiple concurrent projects going - so that was ok for the first year as a start up. Now that the company is full on going concern, I have hired my wife to do all the admin work and finances.
Thanks. I need to find out if it's really worth for me to setup a company since it will be single person company.
I will visit an accountant soon. Let's see.
Keep in mind that setting up as a company will generate more accounting fees.
I have been contracting for a few years now and have used both company as well as PAYG through a payrolling company approach. There are pros and cons to both the approaches.
Pro - You can structure the tax component for your company and payout the rest as salary. But please be weiry of this as ATO requires solid proofs for all the components.
Cons - You will incur yearly charges like PI & PL insurance, Worksafe insurance, Tax Agent Expenses, Company registration costs, ABN registration, GST registration etc, which is not cheap.
Pros- The company will take care of all the behind the scenes and you can concentrate on your other activities
Cons- The payroll company may charge a fee. But the level of services they give outweighs the fees they are charging.
I am using this company called AstorPayroll.com.au which gave me a very good rate of 1.5%. You can give a try with them…
I went the company approach. Extremely easy to do - just need to ensure you stay up to date with your invoices and expenses - use something like Xero and its all straight forward. I spend maybe 15 minutes a week on invoices and expenses and about 20 minutes a month on the ATO tax side of things.