Hi all, I’m getting asked by a recruiter whether I want to do PAYG or use a personal ABN for a contracting position. I never really understood why one would use an ABN as you’d need to get your own insurances etc. Can anybody explain? Cheers Tom
You should seek advice from a chartered accountant but briefly, if more than 50% of your income comes from your own personal efforts then just go with PAYG. You're being asked this question because the ATO etc does not like people who are individual employees behaving as if they're companies when all they're doing is working full time for one employer. On Mon, 11 Dec 2023 at 13:31, Tom P via ozdotnet <ozdotnet@ozdotnet.com> wrote:
Hi all,
I’m getting asked by a recruiter whether I want to do PAYG or use a personal ABN for a contracting position. I never really understood why one would use an ABN as you’d need to get your own insurances etc. Can anybody explain?
Cheers Tom -- ozdotnet mailing list To manage your subscription, access archives: https://codify.mailman3.com/
*Recommendation* If this is your "one job" , the cost and hassle of GST and PAYG accounting, quarterly / annual reporting probably make working through the ABN more trouble than its worth. *Background* For contracting, ABN is frequently tied to a company ("Interposed Entity") setup both as a Services vehicle and circuit breaker to limit your personal liability for contractual reasons. The Agency contracts your company, your company employs you. If you work through any ABN, you'll work need to register as a PAYG Employer and SGC Contributor. *ABN ("Personal Services Business") == PAYG + "Extra Paperwork"* If you take a 12 month contract +2 renewals, your ABN would represent a "Personal Services Business" that cannot carry retained earnings from year to year. All business earnings after GST is treated as your Gross PAYG Income, your PAYG Tax return will look very similar either way. *So why use an ABN?* 1. Many contractors have side-gigs, maintain their own commercial software, or take a new contract every three months. With enough income from Secondary sources, they may avoid PSB determination. 2. Some contractors direct income to a Family trust, permitting wealth distribution across the family to minimise tax. 3. For most ABN Holders, it's just easier to carry the same accounting structure to manage banking/ deductions, SGC etc regardless of where the money's coming from today. 4. Some use an ABN to avoid being treated as a "wages" employee to the Agency, and take control of their own money. Agencies will often "keep" a portion of your contract income to "pay" you between contracts / for sick leave. They may even keep a portion for "long service leave". For true employees these are "on-costs", and come off the company's bottom line. For contractors, they're inventing ways to keep your money in their bank account longer. They can't try this with ABN holders. So it's really a question of whether 1/12th of your money is better earning interest in the Agency's bank account or yours. If cash runs through your fingers like drops of rain, then the Agency's PAYG plan is for You! (You can probably ask them NOT to retain anything when setting up your contract, regardless of ABN. Discuss with your Agent). *ABN (company)Too hard?* Twenty years ago you needed a company to setup your own Superfund and PIPL, lease a vehicle or claim deductions. But you could also pay your partner as bookkeeper. Gradual tightening of Australia's Company, Tax and Super legislation has eroded any real benefit from running a Personal Services Business through a company, while adding the overhead of quarterly or monthly BAS reporting. If you are intent on running a company structure and ABN without so much pain, Companies like Contractor X-Change will setup and manage your company, receive your income, deduct the GST, lodge the reports and pay you as Pla PAYG employee and put away 1/12th of your money in YOUR account for a 3% cut of your income. They'll also facilitate Vehicle leasing and FBT and any other extraordinary company purchases/expenses. *Agency PI/PL?* Most agencies will now extend their PI/PL cover to you either way, it's just a deduction and some paperwork for them, and fairly inexpensive. If you carry your own PI/PL, it's an invite to offload liability on you anyway. The agency cover ONLY covers you for liability risk for that one contract, while holding your own PIPL could cover all of your enterprises. HTH. It's all a bit rough and ready, I hate typing on my mobile. I'm sure I've left holes, it's more just to give you some ideas. Everyone's journey and needs are different. Regards -- Dan Cash m. 0411 468 779 On Mon, 11 Dec 2023, 16:31 Tom P via ozdotnet, <ozdotnet@ozdotnet.com> wrote:
Hi all,
I’m getting asked by a recruiter whether I want to do PAYG or use a personal ABN for a contracting position. I never really understood why one would use an ABN as you’d need to get your own insurances etc. Can anybody explain?
Cheers Tom -- ozdotnet mailing list To manage your subscription, access archives: https://codify.mailman3.com/
Hi Dan, Great explanation and I concur with your info based on my accountants advice with respect to the “Personal Services Business” and the implications. I think the extra burden of the paperwork/insurances/BAS etc is worth the freedom it gives for being the master of your own destiny with respect to controlling your finances. But everyone is different. Kind Regards, Steven Parish From: Dan Cash via ozdotnet <ozdotnet@ozdotnet.com> Date: Tuesday, 12 December 2023 at 4:56 am To: ozDotNet <ozdotnet@ozdotnet.com> Cc: Tom P <tompbiz93@gmail.com>, Dan Cash <dan.cash@gmail.com> Subject: Re: [OT] Contracting PAYG vs ABN Recommendation If this is your "one job" , the cost and hassle of GST and PAYG accounting, quarterly / annual reporting probably make working through the ABN more trouble than its worth. Background For contracting, ABN is frequently tied to a company ("Interposed Entity") setup both as a Services vehicle and circuit breaker to limit your personal liability for contractual reasons. The Agency contracts your company, your company employs you. If you work through any ABN, you'll work need to register as a PAYG Employer and SGC Contributor. ABN ("Personal Services Business") == PAYG + "Extra Paperwork" If you take a 12 month contract +2 renewals, your ABN would represent a "Personal Services Business" that cannot carry retained earnings from year to year. All business earnings after GST is treated as your Gross PAYG Income, your PAYG Tax return will look very similar either way. So why use an ABN? 1. Many contractors have side-gigs, maintain their own commercial software, or take a new contract every three months. With enough income from Secondary sources, they may avoid PSB determination. 2. Some contractors direct income to a Family trust, permitting wealth distribution across the family to minimise tax. 3. For most ABN Holders, it's just easier to carry the same accounting structure to manage banking/ deductions, SGC etc regardless of where the money's coming from today. 4. Some use an ABN to avoid being treated as a "wages" employee to the Agency, and take control of their own money. Agencies will often "keep" a portion of your contract income to "pay" you between contracts / for sick leave. They may even keep a portion for "long service leave". For true employees these are "on-costs", and come off the company's bottom line. For contractors, they're inventing ways to keep your money in their bank account longer. They can't try this with ABN holders. So it's really a question of whether 1/12th of your money is better earning interest in the Agency's bank account or yours. If cash runs through your fingers like drops of rain, then the Agency's PAYG plan is for You! (You can probably ask them NOT to retain anything when setting up your contract, regardless of ABN. Discuss with your Agent). ABN (company)Too hard? Twenty years ago you needed a company to setup your own Superfund and PIPL, lease a vehicle or claim deductions. But you could also pay your partner as bookkeeper. Gradual tightening of Australia's Company, Tax and Super legislation has eroded any real benefit from running a Personal Services Business through a company, while adding the overhead of quarterly or monthly BAS reporting. If you are intent on running a company structure and ABN without so much pain, Companies like Contractor X-Change will setup and manage your company, receive your income, deduct the GST, lodge the reports and pay you as Pla PAYG employee and put away 1/12th of your money in YOUR account for a 3% cut of your income. They'll also facilitate Vehicle leasing and FBT and any other extraordinary company purchases/expenses. Agency PI/PL? Most agencies will now extend their PI/PL cover to you either way, it's just a deduction and some paperwork for them, and fairly inexpensive. If you carry your own PI/PL, it's an invite to offload liability on you anyway. The agency cover ONLY covers you for liability risk for that one contract, while holding your own PIPL could cover all of your enterprises. HTH. It's all a bit rough and ready, I hate typing on my mobile. I'm sure I've left holes, it's more just to give you some ideas. Everyone's journey and needs are different. Regards -- Dan Cash m. 0411 468 779 On Mon, 11 Dec 2023, 16:31 Tom P via ozdotnet, <ozdotnet@ozdotnet.com<mailto:ozdotnet@ozdotnet.com>> wrote: Hi all, I’m getting asked by a recruiter whether I want to do PAYG or use a personal ABN for a contracting position. I never really understood why one would use an ABN as you’d need to get your own insurances etc. Can anybody explain? Cheers Tom -- ozdotnet mailing list To manage your subscription, access archives: https://codify.mailman3.com/
participants (4)
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Dan Cash -
David Connors -
Steven Parish -
Tom P