Working under pty ltd Vs PAYG employee

[t0ne]

Hi Guys,

I am trying to weigh up the taxation payable of working under my pty ltd paying wages to myself compared to a PAYG employee based on an inputted $ income figure.

Are there any spreadsheets out there that can assist?

Also should i be concerned about the 80/20 rule around one source of income as a pty ltd?

How does the ATO determine if your still an employee exactly?

Surely they give you space and wont expect you to gain additional clients/sources of income right away, particulary when the company was only recently formed.

What are the exceptions?

Cheers

Tone

 

[Shahin_Afarin]

There are potentially tax benefits under a company set up than a PAYG set up. Where you will come undone is when you want to get finance as there are certain requirements for self employed applicants.

 

[RPI]

It is also possible to have a trust structure for your business, this may be more beneficial in some circumstances than a company structures.

A good place to start is look at the personal services income provisions.

The ATO has a reasonable guide at http://www.ato.gov.au/businesses/pathway.aspx?sid=42&pc=001/003/092

PSI is really a key factor, if you breach the guidelines then you will be taxed as an employee. You can always seek a personal services income determination from the ATO.

There are also legal and asset protection implications for your business structure. I would recommend taking the opportunity to look at your entire asset protection and wealth creation structures and determine the best option for running the business as part of your overall structure

Darryl

 

[Aaron_C]

Paying yourself a wage vs leaving the income in the company name is a separate issue. The PSI rules apply to your company itself - how it derives the income and where it is from. If you are genuinely self employed (and not an employee except in name) and satisfy the PSI rules then you can start working out whether it is more tax effective to pay yourself a wage or not.

The short answer to your original question is that paying yourself a wage up to the 30% tax threshold of (up to $37,000) is the best option but it also depends on what other negative gearing / tax write-offs you have in that year. If you are paying yourself beyond this you have to pay the 32.5% tax rate, plus superannuation of 9%. Also consider a family trust structure like others have said this may be more effective.

 

[TMNT]

Paying yourself a wage vs leaving the income in the company name is a separate issue. The PSI rules apply to your company itself - how it derives the income and where it is from. If you are genuinely self employed (and not an employee except in name) and satisfy the PSI rules then you can start working out whether it is more tax effective to pay yourself a wage or not.

The short answer to your original question is that paying yourself a wage up to the 30% tax threshold of (up to $37,000) is the best option but it also depends on what other negative gearing / tax write-offs you have in that year. If you are paying yourself beyond this you have to pay the 32.5% tax rate, plus superannuation of 9%. Also consider a family trust structure like others have said this may be more effective.

So this ismy understanding and what i do (feel free to correct me if I wrong)

Until 37k, the tax margins individual are below the 30% company margins, so its financially smarter to pay yourself a salary,

Do a spreadsheet inputting the formulas and there comes a equilibrium point when the 30% company tax margins become more profitable

That being said, having your own company has other benefits like gst credits along with being able to write off so much more in expenses,

For me its pty ltd, is a no brainier!