Home – New Forums Money matters Pty ltd vs sole trader

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  • #999495
    Scottypope
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    Hello, I own a small Pty Ltd cleaning company ( for the last nine years ) , there is only me and 1 sub contractor , The business does quite well but I personally think I should be doing better financially, For example with the turnover of the business as a Pty Ltd company , I need to pay company tax ,GST , PAYG tax with holding’s on my own personal wages ,superannuation for me and my subcontractor, workers compensation etc etc… I feel I am building things up and getting there and when it comes to the end of the qtr I get knocked back down every time . I have been thinking that if I go from Pty Ltd to a sole trader , I will personally end up better off financially, with excluding some of these expenses as a company . Although I know as far as liability goes it’s better as pty , but I just would like to see more dollars in my own pocket :). Any advice is appreciated
    Thx

    #1219982
    LucasArthur
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    Howdy

    Welcome.. Not a tax agent or anything like that, although i am curious on why you think your financial situation will be better if a sole trader? The only fees mitigated, that i can envisage, is company registration etc…

    Curious, how are you saving or where are you saving fees if not a company? i might be overlooking them? Surely, workcover is still a requirement if you employ? insurances are still required? tax on profits or wages is required?PAYG is required, i think, if you employ someone?

    IMO, i think you may want to engage a local accountant or professional to take a snap shot or overview of your situation and personalise some advice for you.. Granted, this may cost some, although may bring a wealth of opportunity to ensure you are positioned best to tackle the hurdles ahead.

    Just not sure i agree that dismantling the company and starting as a sole trader would mitigate any financial obligations you may have if you continue to operate the same way – just under a sole trader arrangement?

    Cheers

    Jason Ramage | Lucas Arthur Pty Ltd | E: [email protected]   P: 61 3 8324 0344    M: 61 412 244 888
    #1219983
    Paul – FS Concierge
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    Hi And Welcome to Flying Solo [USER=114662]@Scottypope[/USER] . It is great to have you!

    Thank you for joining our community and posting.

    It is a tough call for sure – sometimes, the Story of Goldilocks and the Three Bears is apt – too big, too small or just right.

    Each size carries it’s own challenges and being too small means that dollars will always be tight.

    Have you thought about getting bigger or smaller?

    Cheers

    #1219984
    LucasArthur
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    Paul – FS Concierge, post: 265509, member: 78928 wrote:
    Hi And Welcome to Flying Solo [USER=114662]@Scottypope[/USER] . It is great to have you!

    Thank you for joining our community and posting.

    It is a tough call for sure – sometimes, the Story of Goldilocks and the Three Bears is apt – too big, too small or just right.

    Each size carries it’s own challenges and being too small means that dollars will always be tight.

    Have you thought about getting bigger or smaller?

    Cheers

    Thank God for you Paul, i read this so differently.. i read it as mitigating costs by altering structure, not about downsizing or upsizing.. LOL

    Cheers

    Jason Ramage | Lucas Arthur Pty Ltd | E: [email protected]   P: 61 3 8324 0344    M: 61 412 244 888
    #1219985
    Paul – FS Concierge
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    Not at all Jason – given OP’s current situation you are dead on the money and it is a tough spot for many soloists to be in.

    In my worst year, I had a $45k assessable income and my Accountant charged me $4k.

    How to deal with that kind of problem even to the point of asking, “Is it all worth it?” is a very real concern for many.

    At the same time, thinking about problems in a non-linear way can sometimes generate an easier to live with solution.

    #1219986
    bb1
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    I’m with [USER=34537]@LucasArthur[/USER] here, again not an accountant but are you really going to save much changing. Sure you could drop super for yourself as a sole trader, but you are not really getting a tangible benefit there.

    I’m sure an accountant may say yes there are benefits, but my real question though comes from another angle, have you done your figures on what you are charging your clients, maybe you need to do an analysis on that side of the fence. Maybe you aren’t charging enough.

    As for [USER=78928]@Paul – FS Concierge[/USER] problem with accountant fee’s I would be finding one that eats pizza for dinner rather then caviar.

    #1219987
    James Millar
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    Why did you start the company in the first place?
    Was this a recommendation from an accountant (and why)?
    Was it for commercial purposes to look larger?
    Was it commercial purposes because the businesses hiring you would not engage sole traders (because of their own compliance issues)?
    Was it to protect your personal assets in the event of business legal issues?
    Was it to save tax?

    Let’s figure out why it was started in the first place and reflect on whether those objectives have / are being achieved. There must have been some reason for starting a company and spending a $1000 plus several thousand a year – year in year out.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1219988
    Scottypope
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    Paul – FS Concierge, post: 265509, member: 78928 wrote:
    Hi And Welcome to Flying Solo [USER=114662]@Scottypope[/USER] . It is great to have you!

    Thank you for joining our community and posting.

    It is a tough call for sure – sometimes, the Story of Goldilocks and the Three Bears is apt – too big, too small or just right.

    Each size carries it’s own challenges and being too small means that dollars will always be tight.

    Have you thought about getting bigger or smaller?

    Cheers
    Hi Paul ,
    Thanks for your reply , sorry for the delay in replying.
    I did get bigger at some point and had 3 vans on the road ( carpet and window cleaning ) but with all the added expenses it worked out I was making the same myself but just added a bit more stress getting the work in to keep everyone busy .
    I also thought about doing the jobs myself and downsizing but a back injury prevents me from doing this . It’s a catch 22 situation.
    I just see money going into the business and building up , only for it to get chopped back down on a quarterly basis , with myself on a set weekly wage .
    As far as I believe, If I were sole trader I would have the total income at my disposal with a % tax rate to pay on that depending on the turnover .. where as Pty Ltd , from the turnover I pay myself a wage ( and personal PAYG tax ) also company tax , gst , workers comp and super.. I would always have work cover right enough .
    I actually have a buyer for the business which hopefully may happen in the next 4 weeks ( pending a finance loan from their end ) I would be starting a new business from scratch , which is the question I am stuck with- Pty vs sole trader . I would be working solo for the 1st year with a sub contractor on board at times

    Thanks

    #1219989
    Scottypope
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    JamesMillar, post: 265532, member: 5318 wrote:
    Why did you start the company in the first place?
    Was this a recommendation from an accountant (and why)?
    Was it for commercial purposes to look larger?
    Was it commercial purposes because the businesses hiring you would not engage sole traders (because of their own compliance issues)?
    Was it to protect your personal assets in the event of business legal issues?
    Was it to save tax?

    Let’s figure out why it was started in the first place and reflect on whether those objectives have / are being achieved. There must have been some reason for starting a company and spending a $1000 plus several thousand a year – year in year out.
    Hi James

    Thank you for your reply
    Apologies in the delayed response,
    I started as Pty Ltd with the expectation to sell the company one day which would give it a better structure and possibly be more attractive to a potential buyer.
    Also to protect any liability should things ever go wrong .
    I did not know what was involved when I set the company up if being honest ( carpet and window cleaning business )
    I have friends who own their own business and are sole trader who seem to think there is no need for me to be Pty Ltd
    I hopefully will be selling the business soon and starting up a new venture from scratch which is where my question is leading to how to start the new business ( window cleaning and property maintenance)
    I think starting out it may be better sole trader as the expenses are limited to income tax on the turnover ( depending on the tax bracket I would be in ) , also with all the income at my own disposal , as a pose to the income going into the company , then paying a percentage of it as my wages , personal PAYG , company tax , gst and super etc ,( I would always have work cover regardless )
    I’m not in any crisis by far but just reaching out for any feedback I can get .
    This group seems to be a great way of sharing information:)

    Regards
    Scott

    #1219990
    Paul – FS Concierge
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    Hi Scott,

    In the most general terms possible, you would pay the same overall tax as a Sole Trader or a Pty Ltd – it is much more complicated than that when you break it down and you can do things like keep money in the company (paying a lower company rate) if your following year is forecast to have less profit – like I said, it can become complicated .

    But in general terms, no.

    Just in terms of mindset, I personally always distinguish my fees from GST which is a tax I collect on behalf of the government and then send to them every 3 months. I never spend the money with the intention of paying it back.

    To make this work, I started with more money than I needed to run the business and saved a little along the way so that I was capitalised for growth without the stress and headaches that many feel.

    I think it would be a great idea to have a formal consultation with an Accountant around the tax implications of selling your existing business.

    Cheers

    #1219991
    Scottypope
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    Paul – FS Concierge, post: 265669, member: 78928 wrote:
    Hi Scott,

    In the most general terms possible, you would pay the same overall tax as a Sole Trader or a Pty Ltd – it is much more complicated than that when you break it down and you can do things like keep money in the company (paying a lower company rate) if your following year is forecast to have less profit – like I said, it can become complicated .

    But in general terms, no.

    Just in terms of mindset, I personally always distinguish my fees from GST which is a tax I collect on behalf of the government and then send to them every 3 months. I never spend the money with the intention of paying it back.

    To make this work, I started with more money than I needed to run the business and saved a little along the way so that I was capitalised for growth without the stress and headaches that many feel.

    I think it would be a great idea to have a formal consultation with an Accountant around the tax implications of selling your existing business.

    Cheers
    Thanks mate,
    Totally agree , I generally always have capital in the bank to cover all the costs etc.. certain times of the year better than others ,
    If the business sells, it will just be the name, abn and assets that get sold , and so I believe the pty ltd company I will still own , which I will most likely implement into the new business down the line once it grows, and I will have a meeting with an accountant

    Thank you for your input , much appreciated

    #1219992
    bb1
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    Scottypope, post: 265666, member: 114662 wrote:
    I think starting out it may be better sole trader as the expenses are limited to income tax on the turnover ( depending on the tax bracket I would be in ) , also with all the income at my own disposal , as a pose to the income going into the company , then paying a percentage of it as my wages , personal PAYG , company tax , gst and super etc ,( I would always have work cover regardless )

    I’m confused by a couple of things here.

    GST would be the same if you are a company or sole trader. Or am I missing something.

    PAYG is still tax on your income if you are a sole trader or company (via wage).

    Super, yes is compulsory if paying wages from your company, but as a sole trader you should for your own benefit contribute anyhow.

    I think you should urgently go see an accountant and go through your specific scenario, to determine the best way forward, taking advise from a forum on something as important as this is fraught with danger to your hip pocket.

    #1219993
    Scottypope
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    bb1, post: 265674, member: 53375 wrote:
    I’m confused by a couple of things here.

    GST would be the same if you are a company or sole trader. Or am I missing something.

    PAYG is still tax on your income if you are a sole trader or company (via wage).

    Super, yes is compulsory if paying wages from your company, but as a sole trader you should for your own benefit contribute anyhow.

    I think you should urgently go see an accountant and go through your specific scenario, to determine the best way forward, taking advise from a forum on something as important as this is fraught with danger to your hip pocket.

    Of course I will get professional opinions , but I just thought I would get some views from people in the business world .

    This site popped up in an add and I joined randomly to ask the question

    Yes the gst would be the same 10% but there would be no company tax cost

    Thanks for everyone’s feed back

    Scott

    #1219994
    Paul – FS Concierge
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    Just to be clear – but this is not nuanced and doesn’t take into account a million other things that can impact but…

    “Company Tax” is not additional to your personal tax- if the money is left in the company, you pay the CT Rate but if it is distributed, you pay the personal tax rate – and you can mix and match too.

    #1219995
    JacquiPryor
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    Paul – FS Concierge, post: 265681, member: 78928 wrote:
    Just to be clear – but this is not nuanced and doesn’t take into account a million other things that can impact but…

    “Company Tax” is not additional to your personal tax- if the money is left in the company, you pay the CT Rate but if it is distributed, you pay the personal tax rate – and you can mix and match too.

    Was just going to mention similar. I am a director (sole) of a company – I used to pay myself a ‘wage’ through that company, and company would withhold tax, pay my super etc… A few years ago we set up a trust instead (in layman terms, as I’m not an accountant either) – I now get a distribution of profits so company pays tax at it’s rate (lower than personal rate), which is credited against the overall amount I take in profits each year – so I pay the difference in the tax owing as personal tax. I contribute to my super personally, which is then a personal deduction on my return.

    It costs more in annual upkeep to have the trust & company running BUT my fortnightly hip pocket works out better. So, it’s a bit ‘mix and match’ like Paul said in terms of the tax being paid.

    I also keep GST received separately so come BAS time it’s not at all feeling like I’m dipping into the company earnings – most months there’s left over from what I have put aside once GST deductions/credits are factored in so almost feels like a bonus!

    I also do BAS monthly – which helps avoid that feeling of shock when the figures are in front of you!

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