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  • #987718
    fanixaus
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    Hi everyone,

    I’d like to introduce myself as this is my first post on the forum. I’ve lived and worked in Australia for over 5 years. I’ve worked for some major Banking firms over the past 5 years as a Senior Software Developer, ,focusing on developing financial and banking software. I was fortunate enough to secure a 2 year consulting contract with one of the big 4 this week. It’s estimated that I’ll receive roughly around $300,000k p.a from the bank.

    Because they hired me as a contractor/consultant, I had to either provide them with an ABN/ACN, or opt to go on the agencies payroll, which incurs an additional 5.6% payroll fee per month. If you work it out, that’s way over $1000 pm, just for payroll. The agent recommended I go the Pty Ltd route.

    I went to see a CA on Friday, discussed the matter, and then he proposed the following (which is actually what I had in mind and also researched the night before):

    1. Create a Pty Ltd which will then deal directly with the Bank. My company will invoice the Bank for personal services rendered, and then the Bank pays my company.

    2. I will be employed by my company as Director, with an annual salary of $80,000. He explained to me that this arrangement is very optimal as I’ll incur minimum tax as a PAYG employee, and all money going into my company will only be taxed at 30%. Sounds like a very good arrangement to me :)

    3. Of course the issue of PSI comes into pay, with the 80% rule. Luckily I know quite a few well of business owners, most outsourcing their IT to consultants. I managed to secure another contract that will generate annual income of 20%, hence allowing me to pass PSI.

    So, in saying all of this, the only thing I’m not sure about, is this:

    Seeing as I’ll be payed at a lower salary for tax benefit, thats well below the income that i’ve become accustomed to over the past few years. How will I do about in tapping into my income so support my lifestyle (Rent, car, etc..). I know I can expense most things, as I’ll be using my residence for work as well, but I’m not entirely sure how all of this exactly works.

    Also, the CA is charging me $1100 to set all of this up. Seeing as the cost to register an ACN is just over $400, is this something I could possibly do myself, or is $1100 reasonable for setting all of this up correctly? I was referred to the CA by a friend, who knows his brother very well. So I do trust the guy and he seems to know what he is talking about.

    Thanks, looking forward to reading your responses :)

    #1164056
    James Millar
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    1. The setup cost is very reasonable at $1,100. Its bang on average for that service and worthwhile having your accountant handle.

    2. be sure you review the “unrelated client” test carefully. There are two elements to it. You must have evidence that your company makes direct offers to the public.

    3. Importantly – perhaps the overall taxation position has not been well explained / understood. If the after tax funds are withdrawn from the company for lifestyle requirements (or any purpose) then you will face top up tax to your marginal rates. In other words there is no tax advantage other than perhaps a 12 month deferral (because a Div7A debit loan can be cleared in the subsequent year to the loan being drawn). The timing of dividends to clear the loan is important. Too early and you won’t have adequate franking credits. Too late and you will miss the Div7A cut off requirement.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1164057
    fanixaus
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    JamesMillar, post: 189823 wrote:
    1. The setup cost is very reasonable at $1,100. Its bang on average for that service and worthwhile having your accountant handle.

    2. be sure you review the “unrelated client” test carefully. There are two elements to it. You must have evidence that your company makes direct offers to the public.

    3. Importantly – perhaps the overall taxation position has not been well explained / understood. If the after tax funds are withdrawn from the company for lifestyle requirements (or any purpose) then you will face top up tax to your marginal rates. In other words there is no tax advantage other than perhaps a 12 month deferral (because a Div7A debit loan can be cleared in the subsequent year to the loan being drawn). The timing of dividends to clear the loan is important. Too early and you won’t have adequate franking credits. Too late and you will miss the Div7A cut off requirement.

    Hi James,

    Thanks for your input. Good to hear that the CA fees are reasonable, so I’ll most likely agree to this tomorrow morning. In regarding to the “unrelated client” test, yes I will be advertising through my website and public papers, as advised by my accountant. He said he will provide me with all the information I require in order to pass the PSI.

    And yes I would have to get him to explain the dividends again. He did all that but it went over my head :/

    #1164058
    fanixaus
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    Does anyone else have something to add?

    Thanks

    #1164059
    Simply Money Honey
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    Hi Fanixaus

    Just to reiterate what James has said. There isn’t really a tax benefit from having the money go into a company unless you plan to leave it in the company. When you pay the money to yourself (as either salary, director fees or dividends) you will pay the additional tax according to your marginal tax rate.

    Also just checking who is going to do your admin each month e.g. invoice the company for your fee, pay yourself your salary out of the company and remit the tax to the tax office. Are you going to be doing this or is your accountant going to do this on a monthly basis?

    Cheers

    Gabrielle

    #1164060
    fanixaus
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    Simply Money Honey, post: 189850 wrote:
    Hi Fanixaus

    Just to reiterate what James has said. There isn’t really a tax benefit from having the money go into a company unless you plan to leave it in the company. When you pay the money to yourself (as either salary, director fees or dividends) you will pay the additional tax according to your marginal tax rate.

    Also just checking who is going to do your admin each month e.g. invoice the company for your fee, pay yourself your salary out of the company and remit the tax to the tax office. Are you going to be doing this or is your accountant going to do this on a monthly basis?

    Cheers

    Gabrielle

    Hi Gabrielle,

    My accountant is going to do my payroll etc for the first few months, but I’ve been playing around with MYOB Essentials and Quickbooks and it seems pretty easy to manage it on my own, taking up very little time. I’m most likely have him set it all up for me, and then show me how to do it myself.

    Any recommendations when it comes to software?

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