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  • #982068
    Aspstradeservices
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    Hi Guys,
    New to flying Solo and very new to small business.
    It can be so confusing that I though it may be worthwhile to get involved in these discussion forums not only to gather knowledge from experienced business owners but eventually be able to lend a helping hand :).
    I will describe the basic business as best as I can then then follow that up with a few questions. Please forgive me if I am vague in any areas and I will do my best to fill you in.
    Basically I will be receiving random work such as labour jobs, little handyman repairs and simular and paying someone (a tradesman) to complete the work. I guess that’s called sub-contracting. My service is not just a mark-up of prices, it is pure convenience for property owners and I need to be paid at the same times. I have established a list of reliable and well-priced handymen and simular.
    So basically they invoice me for the work completed, I pay them and invoice the client. My mark-up will not be much. Depending on work a maximum of 30%. This is profitable to me as there a pretty much no overheads.
    I spoke to my accountant and he tells me that any profit I make will of course be subject to tax. I will not be registering for gst as I don’t exceed the threshold yet.
    Questions:
    1. If I for instance get in a call to have lawns trimmed and gardens tidied and my Gardner invoices me $100 though his business and I charge them $130. I have made a $30 profit. Does this mean I only pay tax on the $30? If yes is there a rough percentage of how much tax I pay on that profit?
    2. When I do my yearly tax is my business account statement enough to show invoices being paid out to tradesmen or do I have to keep strict tabs on the tradesman correctly invoicing me?
    3. Are there any legalities I should check up on? Does everything I have mentioned sound ok so far?
    I once again apologize if I was vague, but I have done my best to describe my plans. If there is anything unclear I will do my best to answer that for you!
    Thanks.

    #1134659
    JacquiPryor
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    Hi there – I hope this helps:

    1. If I for instance get in a call to have lawns trimmed and gardens tidied and my Gardner invoices me $100 though his business and I charge them $130. I have made a $30 profit. Does this mean I only pay tax on the $30? If yes is there a rough percentage of how much tax I pay on that profit?

    This is more or less right… At the end of the financial year, assuming you’re going to be trading as a sole trader (rather than Pty Ltd company) you’ll file a tax return where you claim all income (so, you would be declaring in this example $130 income) and all business expenses (so, you would then claim the $100 expense you paid to your contracted gardener) – which leaves only the $30 to be taxed.

    The tax rate is your personal tax rate and will need to take into consideration whether you are earning other income etc and therefore what tax bracket you would be in.

    2. When I do my yearly tax is my business account statement enough to show invoices being paid out to tradesmen or do I have to keep strict tabs on the tradesman correctly invoicing me?

    Your bank account statement will not be enough if you are audited. You should have an invoice for every expense – be this your tradesman, stationery you might purchase, software, power etc etc.

    3. Are there any legalities I should check up on? Does everything I have mentioned sound ok so far?

    This government website can help make sure you are meeting all legal requirements to operate your business. You can search by location & business type.

    A couple of things that jump out in my mind;
    a) Make sure where you live (i.e with your council) it’s ok to run a business from home.

    b) Insurance. Speak to an insurance broker. If a customer is contacting YOU to get the work done then they’ll expect YOU to fix any problems. You should have insurance in place for this, and, make sure your contractors have proper insurance for themselves in case you need to make any claims with them.

    All the best :)

    #1134660
    al.giffard
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    Hi there,

    Firstly, congratulations on starting up your first home business! It’s a very exciting time and I’m sure you’ll enjoy the ride.

    In relation to your questions:

    1) Yes, if you get paid $130, but pay your contractors $100, then you’ll only be taxed on your profit, which is the $30.

    Assuming you’re operating as a sole trader, the amount you’ll pay depends on how much taxable income you have for the full year – the personal tax rates are here: http://www.ato.gov.au/content/12333.htm. You can use that table to estimate your final tax, and then figure out roughly what percentage of your profits you should set aside.

    2) You’ll need to keep all invoice from your contractors. The records you’ll need to keep are summarised by the ATO here: http://www.ato.gov.au/businesses/content.aspx?menuid=0&doc=/content/76494.htm&page=16&H16.

    3) From what you’ve mentioned, I’m not aware of any legal restrictions or anything similar, but there are definitely a few legal considerations to take into account – mainly contractual issues. It’d be worthwhile getting advice on this.

    You’ll want to make sure you aren’t the one left with significant obligations in case something goes wrong with the work done, or if it’s not done properly. The risk is that the property manager may refuse to pay more to have it fixed properly, while the contractor may refuse to fix it without being paid more – or insist there’s nothing else wrong. Best to consider these scenarios up front and try to prevent them through your contracts or agreements.

    You should also factor into your mark-up the possibility of property managers not paying, or being slow to pay. You’re likely to have at least some of this – most small businesses do – and you’ll still have to pay your contractors on time.

    I hope that all helps – happy to answer any other questions you have, and please let us know how you progress.

    Cheers,

    Al.

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