IT Contractor - PTY Vs PAYG - Negative Gearing

• 

  SF3 on 01/05/2022 - 22:19

  +4

  so I can ask the accountant the right questions.

  Then you need to find a better accountant, because they should have answers to your questions and give you more advice than what you want to ask.

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  wei13 on 01/05/2022 - 22:35

  +2

  If you don't know about PSI, then first step is you need to read into PSI (personal services income) on the ATO website. I think that will answer most of your questions.

  Essentially, even if you structure via a Pty Ltd, income from your personal service (not from conducting business) will be attributed to yourself, and be paid out to yourself (not taxed in company at company tax rate). From tax perspective, your tax liability will be overall very similar to PAYG.

• 

  Roddi on 02/05/2022 - 00:31

  +1

  5. "There is no non working family member that can be paid from the company" - a dodgy friend thought about doing something similar.
     He wanted to pay his wife $60k pa to clean his 1-room home office.
     He said's it's not illegal - it just means that he's bad at running his company any pays his cleaner too much.
     Maybe not, but it's certainly immoral.

  6. A different friend tells me his company has to pay out 100% each financial year, to stop people gaming the system (retaining income until they have a low income year).

  Go see an accountant. Easy to find competent ones. Harder to find dodgy ones to help with ideas like #5, but I'm sure they're out there.

  • 

    Crow K on 02/05/2022 - 08:59

    re Point #1, the ATO will cancel those deductions so fast his head will spin
    ( https://www.ato.gov.au/business/personal-services-income/in-… )

    File them under "People at barbecues who think up 'clever' ways to get around tax but haven't spoken to their accountant (or don't even have one)", and avoid like the plague.

    • 

      ColonialBoy on 02/05/2022 - 11:29

      -1

      You submit final accounts to the ATO. They have no idea what you are doing until an audit.

      • 

        Crow K on 02/05/2022 - 11:30

        +1

        "it's not illegal if you don't get caught"

        Top tier advice.

        In other news, go away and read up on "PSI", most of the other things you've said in this thread are flat out incorrect.

• 

  NuclearWessels on 02/05/2022 - 00:35

  +3

  I don't get why you'd set up as a PTY to contract to one client.. surely if you're PAYG then you're basically an employee? My understanding is that if you're a contractor then you owe GST on top of whatever you charge.. I'd be careful here as if you haven't hit them up for 10% extra and you're a "contractor" you might owe the government 10%.

  Also if it's just one client you might as well just get an ABN and operate as a sole trader.. Far easier.

  • 

    ColonialBoy on 02/05/2022 - 11:31

    +1

    You start a company, as OP suggests, because the company tax rate is lower than the PAYE tax rate.

    • 

      NuclearWessels on 02/05/2022 - 12:21

      +1

      Company tax rate is lower, but the tax is the same assuming he doesn't hoard it in a company account .. even if he does when he eventually pays it out he needs to pay the difference on personal tax. You can still deduct as a sole trader too so you get a lot of similar benefits.

      I get there is an advantage to doing it as a company, especially as a barrier between personal/company assets- but just for one client I feel that if OP is asking these questions then he might not be aware of the option to just be a sole trader.

  • 

    jpl on 02/05/2022 - 12:23

    +2

    If the turnover is less than $75K, GST registration is optional.

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  mini2 on 02/05/2022 - 08:24

  +1

  You're combining 2 lots of questions into 1 - negative gearing is on your personal tax and the company side, well, it's on the company side.

  Speak to an accountant.

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  ColonialBoy on 02/05/2022 - 11:36

  +1

  1. The company and yourself are 2 different legal entities. They submit different tax returns. You can't mingle expenses & deductions.
  2. Its not a "payout". Say you get $100,000 income in a year. You can pay yourself any salary you want eg $60,000 or $100,000. PAYE and company tax are payable.
  3. Yes.
  4. Flat rate from the first dollar.
  5. Only lower company tax rate.
  6. Not if you have paid company tax. You don't pay tax twice.
  • 

    jpl on 02/05/2022 - 12:27

    +1

    6 is incorrect. Op still need to pay for the difference if his income tax rate is higher than the company's rate. However he will get a refund if lower.

• 

  jpl on 02/05/2022 - 12:19

  +1

  What @mini2 said is pretty on the spot.

  TLDR you cannot claim personal investment property's losses against your "company" 's revenue.

  You need to see the "company" as a different entity even though you own 100% share of the company.

  Layman's answer not an accountant. Read at your own risk.

  1. You cannot claim losses of an investment property own by yourself against the company's revenue.

  2. Your company can pay you any amount (pre-tax) as salary or (post-tax) as dividend, provided all the shareholders agreed to it. Since you are the only shareholder, you can.

  3. Australian Tax system is very smart and covers lots of scenarios. If you think that the company tax will be lower than your personal tax, and thinking of using the company to pay the tax and enjoying lower tax then you are wrong. The post-tax money technically does not belong to you. If you want to use that money, the company has to pay you as dividend or some other means. When paying you dividend, you will be taxed or refunded from the amount offsetting the tax already being paid by the company. So you are basically back to square one.

  4. The schedule is very clear here https://www.ato.gov.au/rates/changes-to-company-tax-rates/ does not seems to have a bracket like personal income tax.

  5. There are a lot of advantage registering as a company. Most people using company to apply for grant, separate your personal property from company, more from here https://boxas.com.au/small-business-handbook/benefits-of-pty….
     Point number #5 on the website is not correct. Despite company enjoying lower tax than individual in some circumstances(2021-2022 is 25%), technically the money in the company is not your money.

  6. If there are money left with the company post-tax, the money can be channeled to you as dividend. Since the money is post-tax money, if your personal income tax is higher than the company tax, you will pay the difference in tax, if your personal income tax is lower than the company tax, you will be refunded.

  More and more mechanism have been added to ATO to detect tax fraud (not saying you are a fraudster), if you need tax help, it is better to ask from a registered account than Jack and Joe from the forum.

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  Unique1234 on 04/05/2022 - 12:05

  Thanks all for taking the time to answer. I found all the information really helpful.