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  • #987427
    ross2129
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    Hi all, thanks for taking the time to read this & I hope someone can help point me in the right direction:

    I currently work full time in a marketing agency (employed by the agency), salary circa $85K.

    Recently I’ve been doing a little bit of freelance work for around $1K per month under my sole trader ABN….not registered for GST. I’ve just picked up some more freelance work which is worth around $4K per month. It looks like these will be long term contracts.

    So having never actually freelanced before, I have a few questions regarding tax.

    I’m sure there are a heap of factors that could weight the answers but really I’m trying to find out what the most effective way to pay tax is. I would like to keep the amount as low as possible.

    As things stand at the moment, am I correct in assuming that I would be taxed on total income of full time work plus freelance? This method would result in a large tax bill at the end of FY.

    Do you think it would make sense to use a payroll company such as CXC global? Do you envisage that there would be much of a reduction in payable tax if I used them?

    The third option would be to register as a company and pay company tax. I heard this can be quite expensive due to a lot of overheads.

    Sorry for all the questions, would be great if someone has any experience, tips or resources they could share with me to help me make the decision.

    Many Thanks,

    Ross

    #1162640
    TehCamel
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    ross2129, post: 187992 wrote:
    Recently I’ve been doing a little bit of freelance work for around $1K per month under my sole trader ABN….not registered for GST. I’ve just picked up some more freelance work which is worth around $4K per month. It looks like these will be long term contracts.
    congratulations ! :)

    Quote:
    As things stand at the moment, am I correct in assuming that I would be taxed on total income of full time work plus freelance? This method would result in a large tax bill at the end of FY.
    Yes – your employer continues to take tax out on a regular basis based on your current PAYG income with them.
    At the end of the year, when you sit down and do your tax with your accountant, he adds in the income from your sole-trader-abn and writes back any relevant expenses. The ultimate outcome is, yes your net taxable income may well be higher.
    However, just make sure you withhold let’s say 50% of your freelance income and put it in an online savings account. That way, when it comes due, you’ve got the money. (Plus, your accountant may be able to do tricky things like delay your lodgement to the very last moment, meaning you get to sit on that money for even longer)

    Quote:
    Do you think it would make sense to use a payroll company such as CXC global? Do you envisage that there would be much of a reduction in payable tax if I used them?

    Personally, I would think not. I havne’t done the sums, but i suspetc they’d end up taking more in their payroll costs than you’d save in tax.

    Quote:
    The third option would be to register as a company and pay company tax. I heard this can be quite expensive due to a lot of overheads.

    you can do a roll-your-own company for about $6 or 700, but there are ongoing asic fees.
    And this wouldn’t help you a great deal, as it’s my understanding that the work you’re doing is probably Personal Services Income – so even though “the company” is earning the money, it’s earning it as a result of your personal exertion, skills and experience, so the ATO look at it and go “well, that’s just your income” so it can be taxed at your personal marginal rate anyway

    hope I’ve bee nable to help a little !

    do you have a partner who doesn’t have a very high income (or no income at all?)
    It might be feasible to register them as the sole-trader, and have them charge you out… not sure if this would work though.

    #1162641
    Past-Member
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    A sole trader gets taxed on the whole of their income – from all sources. As for the freelance bit, if you are going to turnover (not net, but turnover) $75K or more (excluding your paid other job), then you must register and charge for GST.

    You need to have good records to show where your expenses go etc and it’s a good idea to have a separate SAVINGS bank account to bank at least 20% of your freelance income into so that you can draw from that to pay your tax bill or PAYG the following tax year.

    It’s really worth talking to a good accountant. Their fees are tax deductible, and it’s a good idea to get systems in place now, not later.
    Cheers.

    #1162642
    ross2129
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    Thanks so much for your help guys. Really appreciate it. I think I’ll go and see an accountant to get a solid plan in place.

    Thanks,

    Ross

    #1162643
    Simply Money Honey
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    Hi Ross

    Using a payroll company will not lower the amount of tax you pay.

    Your employer will continue to deduct tax from your salary as usual but you will need to put aside the tax portion of your freelance income so that you have it ready to pay your tax bill at the end of the year.

    Make sure you also keep good records of any expenses you incur in relation to your freelance work so your accountant can determine whether you can claim any deductions for them at the end of the year.

    Cheers

    Gabrielle

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