Pay Mrs D instead..?

[Jake D]

Hey folks.

Hopefully just a quick question. I've asked my accountant but his response sounded even dodgier (long story).

I'm employed FT as a permanent employee, I've got an opportunity to also do some contract work on the side.

Is there a simple, legal, cost effective way to have the income from the contract work paid to my wife instead of me, as she is currently under the tax-free threshold, and this contract work won't push her over it. I'm currently in a much higher bracket.

 

[D.T.]

I'm not a tax expert, but will the place you're contracting with let you make the agreement with a disc trust?

If so you could then route the income to yourself, wife, others as needed?

 

[datto]

You do the work and the misses gets paid?

Sounds like alienation of income.

 

[Xenia IM]

Run business under discretionary trust and forward to her as beneficiary.

I'm not a legal person - just how we do it!

Except I make the money and entire family benefits - reverse situation!

 

[Sim]

Can you do the contract work through a company structure?

Have your wife as a director of your company.

Company gets paid for work done (by whomever it chooses to complete the work).

Company pays directors fees (to whichever director it chooses - ie your wife).

Might not work this way - and you have to be careful of personal services income provisions (aka duck-test).

If your company looks like it was set up purely to avoid paying PAYG tax - ie the majority of the income for the company is from a single source and it doesn't do things in the way a business normally would, then it is probably not a genuine business and the ATO will insist that tax be withheld as if you are PAYG.

Basically, the company has to look like a company and quack like a company, otherwise it is a tax dodge and not a duck.

In other words, no, I don't see a simple way of doing this unless you are going to be consulting to multiple different businesses and will be invoicing them in a business-like manner and such.

There were rules set up to avoid this specific type of activity during the dot.com boom where every man and his duck were quitting their PAYG jobs and being hired back as contractors so they could avoid paying PAYG and then get creative with how they manage their tax.

 

[MRO]

If you are the only person earning the income and there is limited capital resources used then you will generally have to report the income in your own name. There are numerous legally defined tests but this is the gist of it.

This is 'bread and butter' stuff for accountants so a quick call should get you a definitive answer.

 

[Jake D]

The company is happy to pay to a trust, so that is an option I was considering.

I don't have a trust set up currently. What kind of cost and time is required to set one up, and/or administer one?

 

[Propagate]

Does a company have to pay it's director within a given time frame?

For example, if you don't need the extra money now, could you start a company with you as director but not take any wages at all from it.

Then, in several years time when say you've quit work, or you have a low income year, take a directors fee from the company then?

(I've got no idea if that's feasible, just an idea that popped to mind).

 

[D.T.]

Does a company have to pay it's director within a given time frame?

For example, if you don't need the extra money now, could you start a company with you as director but not take any wages at all from it.

Then, in several years time when say you've quit work, or you have a low income year, take a directors fee from the company then?

(I've got no idea if that's feasible, just an idea that popped to mind).

I believe companies have to pay tax at 30% every year. So it'd whittle away to nothing if I understand that rule correctly.

 

[Terry_w]

As Sim mentioned you have to consider the PSI rules. It may be that if a company or trustee is contracted you will still be assessed on the income as if it is your own - unless you can meet some tests.

Also with a company in general it can retain profits, pay 30% tax, and the distribute dividends down the track, even in different financial years, with the dividends coming with franking credits and potential tax refunds.

Xenia - business through a discretionary trust will mean it is hard to bring in partners down the track. If it is a company with shares owned by a discretionary trust you can easily transfer shares to others.

 

[pinkboy]

I believe companies have to pay tax at 30% every year. So it'd whittle away to nothing if I understand that rule correctly.

Company pays 30% tax on profit in each fiscal year. Profit retained within the Company is not considered income and cant be taxed again (except the interest it earns which will form part of the income each year).


pinkboy

 

[Paul@PFI]

PSI rules, alienation of income and.......Part IVA.

You may be surprised how often the ATO will check if Mrs D works in the business. when doing a site audit they ask the receptionist etc which days she is in. Where does she sit ? etc...She says. No she doesn't come in usually there for the XMas party though....Fail.

 

[Jake D]

PSI rules, alienation of income and.......Part IVA.

You may be surprised how often the ATO will check if Mrs D works in the business. when doing a site audit they ask the receptionist etc which days she is in. Where does she sit ? etc...She says. No she doesn't come in usually there for the XMas party though....Fail.

I would never be at the office either. I'd be an external contractor.