|
How you structure yourself as a business can have a huge effect on the tax you pay, the insurances you have to comply with, and - importantly - the amount of money you take home after tax.
CXC Global’s team of tax and financial experts can help you choose the structure that will work best for you.
Simply click on the links below, to see the advantages and disadvantages of the various structure options, and how CXC Global can help.
Structure considerations When deciding which structure is right for you, there are number of issues to take into consideration. These include: - Start-up costs
- Personal responsibility for debts
- Ongoing compliance costs
- Risks of non-compliance
- The amount of accounting and administration required
- Tax advantages and benefits
- Any general disadvantages
Talk to CXC Global and our team of tax and finance specialists before deciding which structure may be right for you.
Pay As You Go (PAYG) PAYG (or Pay As You Go) means you effectively become an employee of a recruitment agency or client. Income tax is deducted from your pay by them, before you receive it. Advantages: - Minimal admin
- Low cost, with no start-up, exit or on-going expenses
- Superannuation paid to your choice of fund
Disadvantages: - Unlikely to be tax efficient, with tax often paid at the highest rates
- No fringe benefits
- Tax benefits only annually
- Cost of tax return and financial advice at your own expense
- Undermines the advantages of contracting
How CXC Global can help: - Basic PAYG payroll management
- Full insurance cover, such as Worker’s Compensation, Public Liability and Professional Indemnity Insurance
- Tax advice to determine if PAYG is right for you
- Other services such as travel, vehicle leasing and home loans
Overall: Whilst reducing paperwork and structure costs, this is unlikely to deliver the best outcome for money in your pocket. It would only be used if you have no costs that you can use to salary package - such as a vehicle, computer, home office and mobile phone - to reduce your tax.
> Back to top
Sole Trader, ABN or Partnership These are often the simplest, and first, steps towards being ‘self-employed’. It does allow you to be paid in full - without tax being deducted - but is not popular with employers and recruitment agencies, as they are potentially exposed to liabilities. Advantages: - Potential for more flexible tax situation than PAYG
- Paid gross, with taxes paid quarterly
- Easy to set up and wind up
- Simple to run, with minimal record and book-keeping
- Owner retains authority and control
- Do not have to contribute to Superannuation
Disadvantages: - Many agencies and employers will not engage with a sole trader
- Personal responsibility for debts and liabilities
- No Worker’s Compensation
- Insurances difficult to obtain and costly
- Significant admin costs, between $1000 and $3000 p.a.
- Quarterly BAS
- Cost of an accountant
- No fringe benefits
- 90/10 rule for superannuation tax deduction: if more than 10% of pre-expense income is received from salary payments from employers, Super may not be eligible as a tax deduction
- Tax expenses
- Risk of an audit by the Australian Tax Office
How CXC Global can help: - You can keep your sole trader structure, and CXC Global will engage with recruitment agencies and clients on your behalf
- CXC Global will cover insurances, such as Worker’s Compensation, Public Liability and Professional Indemnity Insurance
Overall: Although potentially more flexible than the PAYG option, this flexibility will come at a dollar cost, as well as your time to run. > Back to top
Pty Ltd Allows you to access a low company tax rate of 30%, retain profits to expand the business, possibly avoid payroll tax, and is acceptable to most recruitment agencies and employers. Advantages: - Access to the company tax rate of 30%: the second highest PAYG rate is 40% for every dollar over $80,000
- Ownership can be transferred, allowing for succession planning
- May be able to retain profits to expand the company, tax-free
- More tax benefits
- Limited liability
- Possible payroll tax savings, as companies with a turnover of less than $600,000 p.a. are exempt from payroll tax. Please note that this will differ from state to state, and the way you engage your end client
Disadvantages: - Alienation of Personal Services Income test: ATO test to check that contractors are not working for one client over a sustained period of time. Most contractors fail the APSI test
- 30% tax rate is a flat rate, so the benefits depend on your earnings level, and overall financial situation. 30% is the personal income tax rate for those earning over $34,000 p.a.
- High start-up and wind-up costs
- High ongoing administration costs
- Time-consuming statutory reporting obligations such as BAS and GST
- Fringe benefits often hard to administer
- Liable for personal tax of contractor
- Superannuation and insurance costs not included
- Insurance difficult to obtain and costly
- Director liability
How CXC Global can help: - Insurance solutions, such as Public Liability and Professional Indemnity Insurance
- APSI guidance
- Tax advice and expertise
- Other services, such as home loans, vehicle leasing and financial planning
Overall: Working as a Pty Ltd allows you to access the often-lower company tax rate of 30%. However, administrating your day-to-day expenses, income and tax liabilities can significantly add to your working burden.
> Back to top
PAYG with salary packaging You join as a member of CXC Global. We then invoice on your behalf, pay you directly, and manage all the tax, insurance and superannuation liabilities. We also structure your salary in a way that ensures more money in your pocket.
Advantages: - More cash in your pocket after tax
- Managed cashflow
- No start-up costs
- Salary packaging benefits such as novated vehicle lease and expenses, computer, mobile and equipment packaging, Living Away From Home allowance, training deductions, subscriptions and membership deductions
- Admin time and costs significantly reduced
- Free personal tax return
- Statutory requirements such as BAS, GST and ABNs taken care of
- Compulsory insurances taken care of and automatically covered
- Free access to tax, accounting and financial planning experts
- No additional audit or accounting fees
- Nominated account management personnel
- MyCXC secure login for electronic timesheets, payslips, training, OH&S, Super, tax and contracts
- No director liability
- Wholesale Super fund if you do not have your own
- Discounts on travel and training
- Automatic membership of the Australian Computer Society (ACS) providing access to training discounts (ACS application fee normally $110, with the first year’s membership costing $320 including GST)
- No APSI issue, as we have a ruling from the Australian Tax Office that ensures we are compliant
Disadvantages: - Tax deductible management fee
How CXC Global can help: - Significantly reduced admin, tax and insurances burden
- Tax effective structure that puts more money in your pocket
- High level of personal service
- Free tax return for the individual
- Free financial advice
- Online reporting of timesheets, payslips and contracts
- No APSI considerations
Managed trust structure A managed trust structure is ideal if you have to pay other contractors for their work on your behalf. Advantages: - Ability to distribute income
- Limited liability
- Ease of succession
- No obligation opt-in/opt-out
- More disposable cash to beneficiaries
- Potential additional tax deductions than PAYG or Salary Packaging
- Reduced administration time and costs
- Free tax return for the individual
- Free access to other experts such as tax, accounting and financial planning
- Nominated account management personnel
- MyCXC secure login for electronic timesheets, payslips, training, OH&S, Super, tax and contracts
- Wholesale Super fund if you do not have your own
- Discounts on travel and training
- ACS membership with training discounts
- Competitive insurance options
Disadvantages: - Tax-deductible management fee
- Eligibility assessment: APSI
- High tax audit risk
How CXC Global can help: - CXC Global provides remuneration management, accounting and tax administration services to executives, independent contractors and self employed individuals.
Overall: If you need to be able to pay other contactors working on your behalf, a managed trust structure allows you to do that. > Back to top
Hybrid structures Depending on your individual circumstances, it may be beneficial to use a combination of the structures above. Contact us to let our team of experts help determine which solution, or solutions, are best for you. > Back to top
International/Overseas management structures Different countries around the world have different, and often complex statutory requirements. CXC Global, with offices all over the globe, has local knowledge and insight, and we have several types of structures. It should be noted that in most countries, you are liable for tax from day 1 if your stay exceeds 183 days. Seek expert advice. Advantages: - CXC Global has local offices around the world, with local expertise and insights
- Australia: see our structures and expertise, above
- USA: help in planning to set aside Australian and other foreign country taxes as and when they fall due - a responsibility of the contractor
- United Kingdom: advice and help on the IR35 legislation
- Ireland and the Isle of Man: help and advice in tax planning and salary packaging whilst working locally, or anywhere in the European Union
- South Africa: help in tax planning and in securing overseas opportunities
- Asia: (TBA)
Disadvantages: - Tax deductible management fees
How CXC Global can help: - Our global network means we can offer local expertise, and salary packaging and tax solutions
Overall: Talk to CXC Global about how we can help you enjoy more money in your pocket, manage tax liabilities, and understand the laws in the country you’re working in. > Back to top |
