easygroove

Hi

Times at the company i've been with for the past 18months are changing due to a recent takeover. I feel days are numbered for some parts of the business including the area i work in. I'm a town/transport planner in Sydney.

On the positive side there is work available for other organizations (Govt and Private) but it would mean going from 'permanent employee' on to a contract (12 months). For the Govt opportunities, the contractor route is means to getting you in and then formalizing a recruitment process over time.

Anyway, my questions are about setting up as a sole contractor. where do i start?? I know i need an ABN, insurance, a business name. The things that i really need to understand are:
- the process of setting business up
- knowing what hourly rate to charge to cover (holiday/sick etc)
- how to sort and pay tax to ATO, paying super

Any tips/advice much appreciated.

Bibbs

I setup my own contracting company.

I basically went to an accountant, handed over $1600 and a company name.
They then came back in 2 weeks with all the details done including shares (1) and all the other details.

I could have DIY'ed it (and i think the fees were quite high) but i needed it done properly the first time or I wouldn't have been paid.

I then went to my bank and opened a bank account for the company.

I also opened a super fund as an employer and added myself and the wife as employees. I used 'Rest' as they had good reviews and their online stuff is pretty good.

I phoned the ATO and explained I was new (and dumb) and they then sent me a 'welcome pack' for the first quater.

Now every 3 months I get a letter from the ATO, to lodge my BAS (Business Activity Statement), which tells them how much money the company made, GST it collected and how much I paid in wages. I then pay the taxes via BPAY and the super into the super funds.

If you work 8 hours days, and 5 days a week. Want 4 weeks holiday. I recon take the permi role pay + 40%. If you are often ill, do more.

Be warned, if you are looking for a house loan, you need to have 12 months of invoices and then only ANZ will touch you (other banks require 2 or 3 years of annual statements).

I added my wife as an employee (she looks after the books etc.). It means I pay her at a lower tax bracket than myself.

Apparently you can also employ your kids (I don't have any) and pay them $3500 a year tax free. So it could be a good way to start a uni fund.

You can claim back the GST on your outgoings every quater, but I save mine till the end of the year to drop my taxable amount.

When i was renting my company office was about 10% of the size of the property, so the company paid 10% of the rent/water/eletric/phone/internet. If you do this for your house loan payments be aware that paying rent means the house is being used as a business and you get his for capital gains when you come to sell it.

There are a few other tax breaks for clothings etc, but only if it's branded (I've not looked into it).

And I've heard some people pay themselves in dividends. This means they pay company tax instead of personal tax, and no super (I've not looked into this either).

knockoff nige

That's an excellent post

easygroove

agreed great post, thanks bibbs........karma for you and some hard work for me!!

Bibbs

This may also help ..

What I was sent when I first set mine up.

COMPANY REGISTRATION
1. Find out what you want to call your company
2. Go to www.ozcorponline.com.au
3. Check that the name you have chosen is available.
(http://www.ozcorponline.com.au/Compa...namecheck.html)
4. Go through the process of register and set up your company
5. Confirm your details
6. Transfer money
7. Your company is registered (I got my registration in about one hour)
8. Go to www.ato.gov.au and apply for ABN,TFN and PAYG (it can take up to 28 days to get those documents)

WORKERS COMP
Once you have received your corporate ACN please complete the following form.
http://www.gio.com.au/sites/default/...quest_Form.pdf
http://www.gio.com.au/sites/default/...Notices_WA.pdf
Email the form to [email protected] Their phone number is 13 10 10

NickyC

I've set up a company in the past for contracting purposes and all what you say is an excellent overview of the requirements.

However paying yourself a low salary and leaving a larger amount as company 'profit' (and thus taxable at the lower company rate) is a grey area for some contractors. If you're contracted to multiple employers in the course of a year and running a genuine business then fine - but if most of your work is for a single employer (ie as a pseudo-employee), then the ATO will deem your company profit to be 'personal services' income and tax it at your normal marginal rate.

That (and income splitting with the wife ) was one of the lurks that the ATO sadly removed for a lot of contractors years ago.

NickyC

Also, the OP should check out insurance requirements, too.

As well as the compulsory Workers Compensation already mentioned; Public Liability and Professional Indemnity might also be needed.

BadgeIsBack

This is one of the reasons I have never gone the own company route.
In my game, (IT) it's Personal services. And you need to meet the 80/20 rule.

Let me be honest, - I've never met someone who seems to do it all correctly.
Most contractors I know would be stuffed if they got audited.

At least the ones who move on every 6 months can get around the 80/20 rule. I've never contracted for long enough to find out so always use an umbrella company. My loss. (Well - I get paid more than if I was a FT employee - and I don't pay punitive insurance).

Look into setting up a Family trust too. Several k outlay. Engage the Missus as a secretary: divide up the funds with the kids and get lower tax rates - and this is the advice I got: .DON"T TAKE THE PISS. And the ATO might change the level at which they consider piss to be taken.

NickyC

All true. I wound my company up after 10 years as there was little or no financial benefit to be gained - but loads and loads of paperwork to do.

I now contract directly or via an umbrella company.

KJCherokee

You don't need to set up as a company unless there isa pressing reason to do so. You can get your ABN by registering as a Sole Trader at considerably less expense - you will still get the quarterly BAS forms from the ATO to fill in.

easygroove

@kjcherokee. That could be all I need. I'm only planning to contract for 6 -12 months after which time I should transition to perm govt contract

spuddyo

I was a 'sole-trader' for over 7 years and it's certainly the easiest way to do it. BAS statements still need to be done quarterly, just beware of the 80/20 rule as mentionwed above. I was contracting to one company, in fact almost an employee I suppose which is what the ATO wanted to stop. The company I was working for had two trading names and ABN's, so I split my monthly invoices between the two and luckily got away with it.

You can setup easliy as a sole trader, the Department of Fair Trading will help you out.

Scotty1

There are pros and cons to sole trader v company and the ATO actually produces a useful guide (link below). With sole trader you can still get personal tax allowance and various tax deductable expenses. However you are personally liable for your work, so are you likely to be sued if it does wrong?
As a company you have more tax deductables, eg full cost of a car, and limited liability but you loose the personal tax allowance and have a heap more paperwork. It was only really worth it if you plan on earning more than about $75k a year tax wise - and that was before the allowance changes this year -not done the calcs since then.Best to get advice on your position if you are not sure from researching yourself.

I looked at both and went with sole trader, set it up myself with limited hassle, set up my website and did my tax return. If its only for a short period, sole trader may be less hassle to see how it goes

http://www.ato.gov.au/businesses/con...01/003&st=&cy=

Also be wary of the PSI (personal services income) tax rules. You need to earn more than 20% of your tax year income from more than one client to be able to get certain occupancy tax deductions. If you plan on working for just one organisation you need to look at this carefully. Again the ATO has a useful guide, but you need to read it a few times to understand it!

Good luck

KJCherokee

I worked as a sole trader for years for just one company: it made no difference to me tax-wise as I had few claimable expenses and paid the same tax as if I was employed on salary, but if you are contracting your employer doesn't have to pay payroll tax: if you are not working the 80:20 rule you can be considered as an employee and your employer will be liable for payroll tax. His problem rather than yours.

Don't forget that over a certain income limit you have to add GST to all your invoices - 12 years ago it was $50,000pa, don't know what it is now.

Dreamy

$75,000 - don't forget that it's that amount in a 12 month period so if you don't register you need to track your turnover on a rolling 12 month basis.

It can be advantageous to register even if your turnover is under this level.