*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
> --
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