Hi Dan,
Great explanation and I concur with your info based on my accountants advice
with respect to the “Personal Services Business” and the implications.
I think the extra burden of the paperwork/insurances/BAS etc is worth the
freedom it gives for being the master of your own destiny with respect to
controlling your finances. But everyone is different.
Kind Regards,
Steven Parish
From: Dan Cash via ozdotnet <[email protected]>
Date: Tuesday, 12 December 2023 at 4:56 am
To: ozDotNet <[email protected]>
Cc: Tom P <[email protected]>, Dan Cash <[email protected]>
Subject: Re: [OT] Contracting PAYG vs ABN
Recommendation
If this is your "one job" , the cost and hassle of GST and PAYG accounting,
quarterly / annual reporting probably make working through the ABN more trouble
than its worth.
Background
For contracting, ABN is frequently tied to a company ("Interposed Entity")
setup both as a Services vehicle and circuit breaker to limit your personal
liability for contractual reasons. The Agency contracts your company, your
company employs you.
If you work through any ABN, you'll work need to register as a PAYG Employer
and SGC Contributor.
ABN ("Personal Services Business") == PAYG + "Extra Paperwork"
If you take a 12 month contract +2 renewals, your ABN would represent a
"Personal Services Business" that cannot carry retained earnings from year to
year. All business earnings after GST is treated as your Gross PAYG Income,
your PAYG Tax return will look very similar either way.
So why use an ABN?
1. Many contractors have side-gigs, maintain their own commercial software, or
take a new contract every three months. With enough income from Secondary
sources, they may avoid PSB determination.
2. Some contractors direct income to a Family trust, permitting wealth
distribution across the family to minimise tax.
3. For most ABN Holders, it's just easier to carry the same accounting
structure to manage banking/ deductions, SGC etc regardless of where the
money's coming from today.
4. Some use an ABN to avoid being treated as a "wages" employee to the Agency,
and take control of their own money. Agencies will often "keep" a portion of
your contract income to "pay" you between contracts / for sick leave. They
may even keep a portion for "long service leave". For true employees these
are "on-costs", and come off the company's bottom line. For contractors,
they're inventing ways to keep your money in their bank account longer. They
can't try this with ABN holders.
So it's really a question of whether 1/12th of your money is better earning
interest in the Agency's bank account or yours. If cash runs through your
fingers like drops of rain, then the Agency's PAYG plan is for You! (You can
probably ask them NOT to retain anything when setting up your contract,
regardless of ABN. Discuss with your Agent).
ABN (company)Too hard?
Twenty years ago you needed a company to setup your own Superfund and PIPL,
lease a vehicle or claim deductions. But you could also pay your partner as
bookkeeper. Gradual tightening of Australia's Company, Tax and Super
legislation has eroded any real benefit from running a Personal Services
Business through a company, while adding the overhead of quarterly or monthly
BAS reporting.
If you are intent on running a company structure and ABN without so much pain,
Companies like Contractor X-Change will setup and manage your company, receive
your income, deduct the GST, lodge the reports and pay you as Pla PAYG
employee and put away 1/12th of your money in YOUR account for a 3% cut of
your income. They'll also facilitate Vehicle leasing and FBT and any other
extraordinary company purchases/expenses.
Agency PI/PL?
Most agencies will now extend their PI/PL cover to you either way, it's just a
deduction and some paperwork for them, and fairly inexpensive. If you carry
your own PI/PL, it's an invite to offload liability on you anyway. The agency
cover ONLY covers you for liability risk for that one contract, while holding
your own PIPL could cover all of your enterprises.
HTH. It's all a bit rough and ready, I hate typing on my mobile.
I'm sure I've left holes, it's more just to give you some ideas.
Everyone's journey and needs are different.
Regards
--
Dan Cash
m. 0411 468 779
On Mon, 11 Dec 2023, 16:31 Tom P via ozdotnet,
<[email protected]<mailto:[email protected]>> wrote:
Hi all,
I’m getting asked by a recruiter whether I want to do PAYG or use a personal
ABN for a contracting position. I never really understood why one would use an
ABN as you’d need to get your own insurances etc. Can anybody explain?
Cheers
Tom
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