1-man company and taxes

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August 24, 2011 at 12:02 pm #974841
camper
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Hi,

I recently formed a company and am providing software development services to several clients.

Here are some facts:

1. This company isn’t registered for GST.
2. I invoice every 80 hours, with an hourly rate.
3. This invoice includes GST.
4. This company makes less than $75k.

I guess you could say I’m very confused on the whole issue of charging for GST and having a company which I use to send invoices from.

Am I doing anything wrong?
Am I shooting myself in the foot by invoicing through this company rather than as a sole trader?

Many thanks all.
August 24, 2011 at 12:15 pm #1070694
MyGreatIdea
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Hi Camper

If you’re not registered for GST then you can’t charge GST. You supply an Invoice (not a Tax Invoice – make sure the word Tax is not shown) for your services – and that’s it. Some suppliers have a note on their Invoice that GST is not being charged.

Wendy
August 24, 2011 at 11:03 pm #1070695
camper
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Thanks I suspected as much. I’ll transfer the GST back to the last client that paid me.

How about my setup in general? Should I be invoicing as a company or is that going to be more expensive for me seeing as my income is relatively low? It is my sole income.
August 25, 2011 at 1:18 am #1070696
MyGreatIdea
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Your setup is something that only your accountant can advise you – he should know the best option for your individual situation.

But if you search through previous threads (search function in grey panel above) you’ll find many discussions on the pros and cons of each.

Hope this helps.

Wendy
August 28, 2011 at 1:34 pm #1070697
CruzAccountant
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Each situation needs to be assessed on it’s own. What was the reason you opened up a company in the first place? Was it lower taxes, asset protection, separate entity, or something else?

Be mindful of Personal Services Income rules as well. The ATO look through the corporate structure and ensure that you don’t claim things that you aren’t supposed to.
August 29, 2011 at 2:09 am #1070698
James Millar
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Based on what you have described there doesn’t seem to be any great advantage operating via a company.

1. You may have PSI attribution of net income so there will be short term minimal tax advantages.

2. It doesn’t sound like you are aiming to develop a larger commercial operation that will require retained earnings and arms length stakeholders for growth. This is where a company shines.

3. You may get some asset protection by trading within a company but you should probably have PI insurance for defective service anyway. The company may be overkill. The existence of PI insurance will also assist in dealing with PSI law (liability for rectification and insurance are part of test process)

4. Your compliance and reporting obligations are far greater with a company than as a sole prop. This takes both time and money.

Helping build better businesses and better lives with expert financial and taxation advice. info@360partners.com.au www.360partners.com.au 03 9005 4900
August 29, 2011 at 6:30 am #1070699
camper
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JamesMillar, post: 88594 wrote:

Based on what you have described there doesn’t seem to be any great advantage operating via a company.

1. You may have PSI attribution of net income so there will be short term minimal tax advantages.

2. It doesn’t sound like you are aiming to develop a larger commercial operation that will require retained earnings and arms length stakeholders for growth. This is where a company shines.

3. You may get some asset protection by trading within a company but you should probably have PI insurance for defective service anyway. The company may be overkill. The existence of PI insurance will also assist in dealing with PSI law (liability for rectification and insurance are part of test process)

4. Your compliance and reporting obligations are far greater with a company than as a sole prop. This takes both time and money.

Thanks.

The reason I incorporated was because I plan to distribute apps on Apple’s App Store. I wanted the limited liability protection of a company. That’s the only reason. Is that reason valid or should I switch to being a sole trader?
August 29, 2011 at 1:02 pm #1070700
CruzAccountant
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camper, post: 88629 wrote:

Thanks.

The reason I incorporated was because I plan to distribute apps on Apple’s App Store. I wanted the limited liability protection of a company. That’s the only reason. Is that reason valid or should I switch to being a sole trader?

Adequate insurance should cover you. This reason alone shouldn’t be the sole purpose of starting a company.
August 29, 2011 at 3:59 pm #1070701
Alan Maddick
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Hi Richard, i disagree. Legal protection can easily be the only reason for starting a company and is certainly one important factor in most client’s decision making process.

There are times when the legal protection offered by a company is the best & cheapest method of gaining some level of protection especially where adequate insurance in either not available or is not commercially viable. I should point out i am an Accountant and these legal issues shoudl really be covered by a lawyer
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