Hi all,
I am a contractor in an IT firm. What are the advantages and things to consider if I am to set up my own ABN and handle my payroll. Are there any tax benefits/loop holes to save some money. I recently purchased a house as well.
Pros and cons of having an ABN if you are a contractor
tobuyRnot2buy on 20/08/2021 - 08:47
Comments
https://publicliabilityinsurance.com.au/becoming-a-contracto…
https://business.gov.au/Registrations/Register-licences-and-…
If you have borrowed to buy a House, if you wanted to refinance would the Bank look at you differently as an Independent Contractor as opposed to an Employee.
If your income is 80% from one source then go PAYG….
+this
You need to establish if your income is PSI and if the rules apply to you. If they do then your deductions are restricted to that of an employee.
You also might want to chat to someone about your liability and how to ensure your assets are protected. If you're a contractor your basically putting your nuts on the line every time you do a job.
If they do then your deductions are restricted to that of an employee.
+this.
Lots of people out there are like oh you don't meet the PSI 80% rule so don't do the ABN thing. There's nothing stopping you from doing it, you just don't get to use the PSI deductions i.e. no better off than being an employee from a tax perspective.
As a general rule of thumb, contractor positions have to pay A LOT more money than salaried positions to come out even.
It's been ages, but I think when I did this, a 60k salary position was better than an 80k contractor position…? It's not a small difference.
Do all the maths and work out how much the annual leave, sick leave, public holidays, super, etc are worth (just in dollars per hour you are paid).
That's not including how much harder it is to get a home loan as a contractor.
There are no real significant tax breaks, either, unless you try your luck actually breaking the law; things like claiming personal items on business expenses are very limited (e.g.: you can only claim whatever portion of your phone/internet/PC was ACTUALLY used for work, and have to have some kind of proof) and you don't get the Entrepreneurs Tax Offset if your "business" is close to working for a single company just like a salaried employee.
Permie gets annual leave, sick/carer's leave, training, SG and you kinda need to roll in how quickly they can turf you into the remuneration equation.
From another point of view - an IT company might be paying you $40/hr for an administrator role, but for it to be worth keeping you on as an employee they'll need to charge you out at $120-200/hr.
It sounds like a rip off but how much time will you be marketing yourself, doing taxes, researching insurance, handling complaints? (earning $0) Or is this just a "hey we can't employ you, so get an ABN and invoice us" which can be dodgy. Obviously can be above board too, particularly when dealing with large firms.
There's a lot to consider here. Take this thread as a starting point and do a deep dive over the next few weeks.
If I'm not hurting for work, I'd not consider taking a contract role (vs. fully employed) unless there was a 75% increase. In my example: if employees for that role are paid $40/hr that means I'd want minimum $70/hr, and hiring an external company would cost more like $120-200/hr. Don't under-price yourself: there's a lot more work in being a contractor.
Are there any tax benefits/loop holes to save some money
No loop holes.
Benefits I guess is you get paid more. If you can keep the contracts going (without much down time) and you don't take that much holidays any ways then probably works out better.
Benefit is tax deduction you get for work related expenses.
Also if you are running a Pty Ltd company you could pay your other half for doing company admin work if they are not working or have spare time and they are not on a higher tax rate than you are.
Sometimes problem is when your contract ends at start of a quiet period you might be out of work for a few months, economic down turn may not help.
Once your home settles the bank can't recall the loan because you changed employment type. If you are looking to refinance / sell & buy again I'd talk to a broker and get an in principle approval to test the waters first. Always banks willing to lend but at what interest rate is the question.
Best you check with your accountant, on what is "above board".
Some information you can read up on ato https://www.ato.gov.au/Business/Income-and-deductions-for-bu…