Moving from PAYG to ABN - IT contractor

Discussion in 'Accounting, Tax & Legal' started by property_geek, 13th Feb, 2019.

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  1. property_geek

    property_geek Well-Known Member

    Joined:
    31st Jul, 2015
    Posts:
    231
    Location:
    Australia
    Hi,

    Many IT contractors in my circle advise working as ABN contractor can save lots of tax. However they can't explain how as their tax affairs managed by accountants.

    Here is our situation:

    Spouse 1:
    Contract rate: $960 per day inc super - PAYG ($219k yearly taxable working 250 days a year)

    Spouse 2:
    Contract rate: $850 per day inc super - PAYG ($194k yearly taxable working 250 days a year)

    Considering:
    - Contract rates (salaries) remain same.
    - Tax affairs managed by accountant hence incurring accountant fee.
    - Own one car - drive to work together (same work location)
    - 2 kids. One 8 yo another 2yo.
    - Own 6 investment properties averaged neutral geared.

    question:
    Would we have more after tax money in our bank account at the end of year if we move from PAYG to ABN (or Pty Ltd. Not sure if it is the same thing) ?
     
    2 people like this.
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Plus Member

    Joined:
    9th Jun, 2006
    Posts:
    27,101
    Location:
    Australia wide
    Having and ABN doesn't change anything at all as an ABN is just a number, not a separate entity. What they may be suggesting is that they might contract with the spouse to provide services and divert income to them, which would save tax if they are on a lower tax bracket .

    But, it sounds like it is personal services income which would mean the individual doing the work is the one that is taxed, whether the contract is a company or trustee doesn't matter.

    Sounds like some dodgy stuff going on with the others.