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  • #977804
    Midsomer
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    Hi there,

    I’m sorry if this has already been asked, I did conduct a search and came up blank for ’80/20 tax’.

    I am looking to go out and work for myself under ‘insert name pty ltd’ as a contract supervisor in the mining industry, and am looking for some clarification on this 80/20 rule. And yes, for those wondering I will be calling my accountant first thing in the morning, but its Sunday! So thought i’d see if I could get some info here first..

    The way I read the rules are like this..

    If you earn more then 80% from one client, you will pay PSI? Ok, simple.

    If I earn say 75% from one client, and 25% from another, I would pass one of the unrelated client tests provided my services were advertised to the public, etc.

    The questions I have are:

    If I personally earn say 200k for the business in a tax year, but earn 150k from one company, and 50k from another… Am i not liable for PSI? Meaning I could pay myself a salary of say 80k, and after business expenses, leave the profits in the company and pay the 30% company tax rate on the remaining?

    If I work for one client, and earn 200k, but employ another person, perhaps a tradesmen, and i still earn the 200k from the one company, but the 2nd employee earns the business 100k, brining the total income for the company to 300k, this means that my contribution to the companies earnings is only 66.6%, so does this mean I am not required to pay PSI and can continue on with paying self a salary and leaving profits within the company to expand the business, pay dividends to my wife etc..

    I will be talking to my accountant bout this, but just thought i’d ask anyway! Thanks! :-)

    #1101585
    JacquiPryor
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    Hopefully someone will be along to clarify, but I thought PSI would only be relevant if you are working 80% for a company? In the scenario you put forwards it is your Pty Ltd company that would be deving, perhaps 80% income from the one client rather than yourself personally? Everything I see at the ATO website relates to an ‘individual’ deriving 80% from one client rather than a Pty Ltd deriving 80% from one client.

    If you registered a Pty Ltd and it paid you wages or a salary then you are an employee of your Pty Ltd so would pay ‘normal’ tax on your income, as though you were employed by any other company.

    If you, rather than acting as an employee of your Pty Ltd “contracted” yourself (under your own ABN) to your Pty Ltd, and 80% of your income or more came from your Pty Ltd to you as a contractor, I believe that’s when it would apply.

    #1101661
    JacquiPryor
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    Hopefully someone will be along to clarify, but I thought PSI would only be relevant if you are working 80% for a company? In the scenario you put forwards it is your Pty Ltd company that would be deving, perhaps 80% income from the one client rather than yourself personally? Everything I see at the ATO website relates to an ‘individual’ deriving 80% from one client rather than a Pty Ltd deriving 80% from one client.

    If you registered a Pty Ltd and it paid you wages or a salary then you are an employee of your Pty Ltd so would pay ‘normal’ tax on your income, as though you were employed by any other company.

    If you, rather than acting as an employee of your Pty Ltd “contracted” yourself (under your own ABN) to your Pty Ltd, and 80% of your income or more came from your Pty Ltd to you as a contractor, I believe that’s when it would apply.

    #1101587
    Midsomer
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    Thanks for the reply, I never through about it like that. The way I read it was, if you are offering pesonal skills, which in my case would be a supervisor on an hourly rate, then even if you contract to a company, whilst working under your own company name, I’d be classed as an employee of the company id be invoicing if 80% of the company income was generated by my personal skills? which would mean I’d have to pay PSI which when talking 2-300k it adds up to close to 40% personal tax!

    Basically what I want to do is work for my own company, pay myself a salary of around 120-130 and after deductions leave the remaining profits in the business, for future growth, plant purchase, dividends, etc.

    I think I’ll pass the employment test for psi if I employee another person, subcontract even for my company to assist With my work, providing they earn the company at least 20% of the revenue, theoretically I can go ahead with my salary and leave the profits in the business.. I will clarify this though! I may be wrong :-)

    #1101663
    Midsomer
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    Thanks for the reply, I never through about it like that. The way I read it was, if you are offering pesonal skills, which in my case would be a supervisor on an hourly rate, then even if you contract to a company, whilst working under your own company name, I’d be classed as an employee of the company id be invoicing if 80% of the company income was generated by my personal skills? which would mean I’d have to pay PSI which when talking 2-300k it adds up to close to 40% personal tax!

    Basically what I want to do is work for my own company, pay myself a salary of around 120-130 and after deductions leave the remaining profits in the business, for future growth, plant purchase, dividends, etc.

    I think I’ll pass the employment test for psi if I employee another person, subcontract even for my company to assist With my work, providing they earn the company at least 20% of the revenue, theoretically I can go ahead with my salary and leave the profits in the business.. I will clarify this though! I may be wrong :-)

    #1101589
    TehCamel
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    JacquiPryor, post: 113732 wrote:
    H Everything I see at the ATO website relates to an ‘individual’ deriving 80% from one client rather than a Pty Ltd deriving 80% from one client.

    Yes.. but they actually view it as PSI, if you’re using a single-person company.. if the company is earning 80% of it’s income from a single source.. and there’s only a single director/employee, then it’s classed as PSI anyway. They do this to stop people trying to get around tax legislation.

    at least, that’s my understanding.
    I’m no accountant though

    Ok, here’s a link for you
    http://www.ato.gov.au/content/downloads/BUS00167666n72510_09.pdf

    Basically, it says:

    Quote:
    If you work out that:
    n more than 50% of the income you received is for the skills,
    knowledge, expertise or efforts of the individuals who
    performed the services, then the income for that contract is PSI

    So I look at it for myself in this way.
    More than 50% of my income comes from the provision of IT Support services, based solely on my skill and experience. So, yes, it could be PSI.
    Then I hit the next 4 rules.
    Results (80%?)
    Unrelated (are the entities related?)
    Employment (could i be classed as an employee?)
    premises (where do I Work?)

    I don’t acheive the 80% rule – as my largest client is only 60% of my income, so I’m exempt from PSI as I understand it.

    It then goes on to say:
    If your business does not pass the tests, then the PSI rules apply and

    Quote:
    the PSI your business received will need to be attributed
    (treated as belonging to) the people who performed the
    services (that is, the profits can’t be retained in the business)
    #1101665
    TehCamel
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    JacquiPryor, post: 113732 wrote:
    H Everything I see at the ATO website relates to an ‘individual’ deriving 80% from one client rather than a Pty Ltd deriving 80% from one client.

    Yes.. but they actually view it as PSI, if you’re using a single-person company.. if the company is earning 80% of it’s income from a single source.. and there’s only a single director/employee, then it’s classed as PSI anyway. They do this to stop people trying to get around tax legislation.

    at least, that’s my understanding.
    I’m no accountant though

    Ok, here’s a link for you
    http://www.ato.gov.au/content/downloads/BUS00167666n72510_09.pdf

    Basically, it says:

    Quote:
    If you work out that:
    n more than 50% of the income you received is for the skills,
    knowledge, expertise or efforts of the individuals who
    performed the services, then the income for that contract is PSI

    So I look at it for myself in this way.
    More than 50% of my income comes from the provision of IT Support services, based solely on my skill and experience. So, yes, it could be PSI.
    Then I hit the next 4 rules.
    Results (80%?)
    Unrelated (are the entities related?)
    Employment (could i be classed as an employee?)
    premises (where do I Work?)

    I don’t acheive the 80% rule – as my largest client is only 60% of my income, so I’m exempt from PSI as I understand it.

    It then goes on to say:
    If your business does not pass the tests, then the PSI rules apply and

    Quote:
    the PSI your business received will need to be attributed
    (treated as belonging to) the people who performed the
    services (that is, the profits can’t be retained in the business)
    #1101591
    Midsomer
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    So I wonder if I have someone working for the company earning greater then 20% then my contribution to the company earnings should not be considered as PSI.

    so, if I earnt 200k, and had someone working earning say 100 and someone else earning 50.. That’d be compan revenue of 350, my contribution would be say 55%, then I’d imagine the ato would not view the company’s as an anti tax avoiding one because there would be several people contributing, as well as it won’t be a one man company anymore, etc..

    Hmm…

    #1101667
    Midsomer
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    • Total posts: 26
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    So I wonder if I have someone working for the company earning greater then 20% then my contribution to the company earnings should not be considered as PSI.

    so, if I earnt 200k, and had someone working earning say 100 and someone else earning 50.. That’d be compan revenue of 350, my contribution would be say 55%, then I’d imagine the ato would not view the company’s as an anti tax avoiding one because there would be several people contributing, as well as it won’t be a one man company anymore, etc..

    Hmm…

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