Ongoing costs of running a Trust

Hi Guys,

I've been reading a lot of articles around the set up of PTY + trust to receive my income as an IT contractor for tax effectiveness purposes.

And because I know this a really complex issue that requires expert assessment and guidance I've got in touch with an accounting firm to help not only during the initial stages of this process like setting up the company and trust but also to maximise the return of my "investment". That means running the BAS reports, tax advice along the way, professional indemnity and public liability, taxation audit, preparation and lodgement of ASIC returns and all financial planning and strategies services.

That all sounded really good and perfect for what I need but I was quite scared with the pricing model they use which is a percentage of my gross income charged every year... So my question is if this is what this kind of service charges or fixed price is more usual?

Thanks
 
That means running the BAS reports, tax advice along the way, professional indemnity and public liability, taxation audit, preparation and lodgement of ASIC returns and all financial planning and strategies services.
I'm not sure how complex your tax is but I run the books for two companies and a small business. This involves preparing and lodging 12 BAS reports and 2 ASIC returns every year. For the BAS I use eLodgement and the ASIC is also done online. The ASIC returns are the easiest. I just log in, check everything is correct and if there are no errors or omissions then I don't have to do anything except pay the bill on time ;)

The tax for the companies and small business is straightfoward so I don't need an accountant to prepare those. But then I studied tax accounting at uni as part of another degree so I knew where to start.

I still need to pay for tax advice if something unusal crops up. Working with a good accountant is recommended but in my experience they can tend to set up structures that maximise their income stream from you rather than minimise your costs.
 
A perccentage is unusual and I have never seen a firm that charges like this.

Most tax firms charge fixed fees for the trust tax return plus an additional fee per property owned or CGT schedule etc.
 
Hey guys thanks for your responses...

Terry_W, I'm under the same impression that a fixed fee would be more common and that's pretty much what made me put this post up.

Even though they will be providing all the services I've described previously on top of the BAS and ASIC returns how much do you think the cost should be?

I know it's a tough question and might have multiple variables to consider... So let me know your thoughts.
 
Some of it seems to be financial advice and some tax advice.

It is a how long is a piece of string type question - it all depends on what the trust is undertaking, how many investments, what sort, what advice etc is needed.
 
I've just done this setup for my IT contracting. I haven't bothered with setting up a company (you mention ASIC). AFAIK it's an unnecessary expense unless you plan to run a car lease.

I knew what I needed from asking peers, but did have my accountant double check it all over. I'm using Xero, which is really easy.

I pay my accountant a fixed $200 per month for all accounting services (up to 4x questions per month throughout the year and all returns at the end of the year).

Paying a % seems like the smart thing to do for them but really a return is a return if you gross $100k or $1M... it should be more based on the hours of work rather than how many zeros on the end of the figures they calculate.

In fact, having spent hours researching, going through the process with paid input from several other contractors and Deloitte/KPMG/EY accountants I was considering writing up an eBook on how to do the setup (with all links and pictures). I'm really saving a huge amount doing this, around $17k per year. I know where PI and PL can be had for as little as $650 underwritten by Lloyds of London. Would there be demand for such a book? Do you care to share what articles/links you used because I never found anything useful myself. Would be good to see what is already out there for free.
 
David

When you ring your accountant I hope you don't ask "hi how are you?" as that would leave you just 3 more questions.

Having a company is the most important part. You (as trustee) will be entering contracts which carry risk. Any dispute may result in you being sued and all your personal assets are then at risk.
 
David

When you ring your accountant I hope you don't ask "hi how are you?" as that would leave you just 3 more questions.

Having a company is the most important part. You (as trustee) will be entering contracts which carry risk. Any dispute may result in you being sued and all your personal assets are then at risk.

Hahaha, I'll remember to skip that question and just get straight to it :) Reminds me of the old joke,

Person 1: 'Can I ask you a question?'
Person 2: 'Sure. What's your second question?'


Terry - I can see a company would give you additional protection, although I'm assuming the PI & PL would be your first line of defence?

Also, when researching this, I found that no examples of an individual/independent/sole trader contractor ever being sued in Australia. Most people seemed to believe that even the PI/PL insurance was a waste of money but something people insist on 'just to be safe'.
 
Hahaha, I'll remember to skip that question and just get straight to it :) Reminds me of the old joke,

Person 1: 'Can I ask you a question?'
Person 2: 'Sure. What's your second question?'


Terry - I can see a company would give you additional protection, although I'm assuming the PI & PL would be your first line of defence?

Also, when researching this, I found that no examples of an individual/independent/sole trader contractor ever being sued in Australia. Most people seemed to believe that even the PI/PL insurance was a waste of money but something people insist on 'just to be safe'.

Sole traders are getting sued everyday of the week. Just have a look at some of the court lists - especially builders and tradesmen.

All insurance is a waste of money, until you need it. It is a must have, but hopefully you will never need it. And check what the insurance will cover. If you enter a contract to do some work and then are unable to complete or there is a dispute about price would it cover you for this sort of thing?
 
Sole traders are getting sued everyday of the week. Just have a look at some of the court lists - especially builders and tradesmen.

All insurance is a waste of money, until you need it. It is a must have, but hopefully you will never need it. And check what the insurance will cover. If you enter a contract to do some work and then are unable to complete or there is a dispute about price would it cover you for this sort of thing?

I suppose IT contracting is a tricky area with lots of 'grey'. In the building industry, designs, colour and material choices and dates for individual projects are all contracted and signed off.

In individual level IT contracts, all the wording is general in nature because typically the customer never really knows what they want (until they have something delivered to them, then they know how they want that modified until they get it right). It'll be something like 'the IT contractor will follow all instructions to the clients to the best of their ability as is reasonably expected by someone with the appropriate qualifications'.

Project requirements are documented, but never signed off in a contract at an individual's level. Sure, a consulting company would sign a master agreement or a statement of work at a project level and I'm sure those guys would be sued from time to time.

Still good to have the insurance, but I still understand why many see it as a waste of money at an individuals level. Except in the case of gross incompetence, an individual could almost always prove that they were never given clear requirements to start with. In the same way clients never sign off on requirements due to their lack of knowledge or *** covering on their part a formal (or sue-able) agreement never seems to exist in practice. I also doubt any lawyers/clients would have the technical expertise to make a solid argument in court either.

The reality is if an individual IT contractor is no good the client will just terminate the contract using the 1 week notice period.

This landscape may be changing however with the increase in poorly skilled 'IT professionals'.
 
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