Home – New Forums Starting your journey Sole trader or Pty Ltd?

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  • #982979
    having a go
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    Hello,

    I’ve been spending some time reading through the forum and have got some ideas, but thought Id throw out a scenario closer to mine.

    I have a full time job and I also have an ABN that I use to do odd building jobs here and there (I am licensed). Since the amount of work for the second job does not amount to 75K per year I understand that I don’t need to register for GST.

    I also understand that any money earned on my second job gets added to the money earned in my full time job and taxed at a higher rate if I break the threshold.

    Let’s say that my full time job pays 90K per year and the second job will earn no more than 20K per year this will bring my combined income to 110K per year.

    Now to the questions.

    1. From a taxation point of view, is it worth doing the second job under a Pty Ltd structure so that the 20K earned will be taxed at 30% instead of the 37%?

    2. I would assume that running a pty ltd structure will be a little more involved, what are some of the disadvantages to doing so?

    I apologise if my questions are a little naive but id like to know if there is a better way to what I am doing now.

    Thanks for your help,
    having a go.

    #1139965
    Anonymous
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    Hi having a go,

    There are others around here more qualified than me to answer your question, so I’ll leave that to them – but in the meantime, just wanted to welcome you to Flying Solo :)

    Jayne

    #1139967
    Steve_Minshall
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    It is easy to get lulled by the lower tax for companies but don’t forget the following.

    The company will be taxed at a lower rate on its profits but it is not your money.

    To make it your money you will have to pay out a dividend. This is still taxable income (albeit with some of the tax already paid).

    My wife is a soloist and has a company and it can be a real pain trying to minimise tax and actually get use of the money rather than let it sit in the bank. Then we always seem to slug a big personal tax bill at the end of it anyway:rolleyes:

    Even though she works alone she has to pay Workcover premiums for herself, Superannuation amounts and the timing of payments become mandatory and any cash flow we use from the company has to be monitored and accounted as a loan. Not to mention the increased reporting that will require more professional accounting help than a Sole Trader.

    So it is not just about doing a mathematical calculation you have to look wider. Do you want 9% of your ‘extra’ income going to Super, do you need Workcover insurance?

    And remember it is much easier to go from Sole Trader to Company than the other way round.

    #1139968
    James Millar
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    If you need access to the extra income (for living) then it will need to come out of the company as either a wage or a dividend. This means you will be taxed at personal margin rates in the same way as if the income came directly to you.

    Look at it this way – a company only provides a deferral advantage. If you can split income then there may be other benefits.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1139969
    businessinteractive
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    having a go, post: 159786 wrote:
    2. I would assume that running a pty ltd structure will be a little more involved, what are some of the disadvantages to doing so?
    .

    When I first started out, I did work on the side. I elected to register a Pty Ltd for the extra protection that it provided in the unlikely event something went wrong and I was sued.

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