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  • #988405
    BGK
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    Hello All, I am thinking of working as contractor in IT ( software consulting ) by setting up my own company. I am a sole director working for my company.
    1. I would like to know how to I pay myself, and how much should I pay myself, what are factors that decide my pay.
    2. what are obligations in terms of super, should I contribute my own super?
    3. how is tax calculated?
    Any inputs would be much appreciated.
    Thanks
    bihag

    #1166999
    niknah
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    If you set up a company you’ll pay 30% tax in the company. So you’d want to pay yourself everything you earn until you have to pay 30% personal income tax.

    I was an IT contractor for a few years but only as a sole trader. Unless you expect to have to go to court or earn more than $180k (past 30% tax), there’s usually no need to set up a company.

    And setting up a company will get you an ACN as well as an ABN. If you just want an ABN, you can register that as a sole trader.

    #1167000
    Daniel Mitchell
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    Hi there

    Yes, as was stated previously the tax is going to be your main implication in salary. Company’s have a flat 30% tax on profit, whereas your personal income will be a tiered tax depending on your level of income. There are benefits to owning a company, mainly limited liability (protecting your personal assets in case of the company being sued, insolvency etc.) but you will find there are other associated costs for the privilege. You will probably want to pay yourself a regular salary, which you will then pay income tax on, and will also need to pay yourself superannuation from the company.

    Operating as a sole trader is simpler and the income is treated as personal income without needing to be paid a salary. You won’t need to pay superannuation, although you may find this is a good long-term strategy if you want to save for your retirement (there are tax benefits compared to other investment opportunities, although you will want to investigate and make this decision based on your personal circumstance).

    Independent to both of these decisions, you will need to decide whether to register for GST, which if you are earning over $75k per year it becomes a requirement. You will also want to investigate professional liability insurance, although depending on the type of contracting you do this may not be required (some employers will cover the insurance for you).

    It may be best to speak to an accountant to get a professional opinion based on all factors, but you can get a lot of information about everything online. Your first decision should be company vs. sole trader, and the simple choice would be sole trader unless you plan to earn over the thresholds where the flat company tax is a benefit.

    All the best.

    #1167001
    help4bis.com
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    Also keep in mind.

    Working as an IT consultant you need to keep the 80/20 rule in mind, if you work for the same company for a financial year (which is quite common) then the ATO sees you as an employee of that company so you get hit with tax.

    Along those lines anyway, not a tax expert but do your homework…IT is a funny beast.

    Help4bis.com

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