What makes me self employed

Discussion in 'Loans & Mortgage Brokers' started by Grandstream, 15th Aug, 2019.

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  1. Grandstream

    Grandstream New Member

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    Hello everyone,

    This is my first post. If this has been discussed previously my apologies in advance.

    Here is what I'm trying to understand:
    - At what point am I considered self-employed
    - How do I, as a self-employed applicant, get represented in an application if I own a Company and pay myself a PAYG income?

    Currently, its seems application capture only allows one, either you're PAYG or you're self-employed. But in the scenario where my company also employes me am I entered in as PAYG with the company as an asset on the application or do I go down as self-employed, providing company profits and losses but have nowhere to enter in my PAYG income?
     
  2. Redwing

    Redwing Well-Known Member

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    When the boss doesn't get pissed that you didn't show up for work, coz you is the boss

    In the second you are still self-employed aren't you, by a company you own?
     
  3. sumterrence

    sumterrence Well-Known Member

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    You are considered self employed
     
  4. Scott No Mates

    Scott No Mates Well-Known Member

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    If you are on PAYG, you're an employee.

    You also fit the subset of being the director of the company which is also your employer.

    The company is a different entity to the person.
     
  5. Stoffo

    Stoffo Well-Known Member

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    Both :confused:
    You as the director of the company are self employed
    Your company pays work cover, based on the wages paid
    Those wages are, paid to you, as an employee, with tax withheld
    That tax withheld is passed on to the ATO by your company.......

    Confused yet :rolleyes:
     
  6. AJP

    AJP Active Member

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    When you are a director AND shareholder of a company and/or derive income from work that requires an ABN registration (I.e a sole proprietor)
     
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    The moment you said, "My company", as in you ultimately own and control it. You're self employed.
     
  8. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    You'd be self employed.

    You can pay yourself a wage - but the bank won't use that income to determine your borrowing capacity. They will generally need two years of company/individual returns to determine your income.

    Cheers

    Jamie
     
  9. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    From a finance perspective, it's all yours. You may pay yourself a wage, but as you're ultimately responsible for the company, you're self employed from a banks perspective.

    There are some lenders who will ignore the company, as such, and just go off your notice of assessments but it won't work in all scenarios.
     
  10. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Many lenders conduct a search with ASIC looking for Directorships. They then query if that entity is trading or not and so forth. Often a letter can confirm its not trading (ie SMSF trustee) or explain the nature
     
  11. Terry_w

    Terry_w Broker, Lawyer, Tax advisor, Debt Recycle advisor Business Member

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    Don't forget that directorships can be changed easily, and shareholders can also be changed - without triggering CGT too. Just get some legal advice before trying this as there are consequences.
     
  12. Marty McDonald

    Marty McDonald Mortgage broker Business Member

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    When your income is derived from an entity that is under your control you are self employed. That you pay yourself a PAYG wage is irrelevant for determining this.

    Director of Pty Ltd + significant ownership ie shareholder over 20% = self employed.

    A director of a listed company would not generally be self employed because they might only own 0.0005% of the company for example.

    A minority shareholder (less than 20% owner) in a business who was not also a director would not be classed as self employed by most lenders.
     
  13. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    One of the more ineffective ones is Fred gives Westpac or St George Vehicle Finance a Directors guarantee. Then he quits as Director. May even breach a covenant on some loans.

    Trust beneficiaries can also give rise to queries. eg Lender sees that in 2018 the XXX Family trust distributed $4K to Peter. They then want to understand who controls the trust etc. Is it passive or active income ? Risks ? Typically they wont allow the income BUT in some cases they may. I have encountered taxpayers who can use any entity they wish and the lender will still lend to it provided they have a degree of control.
     
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  14. AJP

    AJP Active Member

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    Good call out Marty, however i have only heard of the above when you are establishing the profile with the bank (NAB in this case) and a company search revealed another individual as a shareholder with +20-25% of shareholding, they would require them to open a profile/AUSTRAC to be completed as well to link them as a beneficial owner.

    From an income assessment perspective, Director & even equitable owner of 0.0001% to 20%, you're still technically self employed...

    And yes i would also agree that trust distributions would prompt reasonable questions to be asked in regards to the nature of the flow of funds
     
  15. Terry_w

    Terry_w Broker, Lawyer, Tax advisor, Debt Recycle advisor Business Member

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    This could only be the case if the company was the borrower or account holder.
     
  16. Marty McDonald

    Marty McDonald Mortgage broker Business Member

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    Not quite right. I don’t think the ceo of cba (director and shareholder) would be classed as self employed. Some common sense comes into play for larger companies. I’ve also had directors of mid sized companies with nominal shareholding classed as not self employed.

    By the same token I’ve had a managing director earning $1m pa salary with no equity in the business asked to supply the company financials for a multi national insurance company. So common sense doesn’t always work.
     
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  17. Terry_w

    Terry_w Broker, Lawyer, Tax advisor, Debt Recycle advisor Business Member

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    I have had one client who was a director, but not a shareholder of a medium sized company - not self employed.
    Also had a client who was a shareholder of a small company but not a director - got through as an employee.

    Another one a few weeks ago, the client was employed, legitimately, by her brother who was a sole trader i think. Different surnames even, the bank picked it up and classed her as self employed even though she wasn't and have payslips, employment contract and bank accounts showing income deposits. Luckily the deal serviced without her income as they wanted the brother's tax returns.
     
  18. Harry30

    Harry30 Well-Known Member

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    I understand that banks will certainly do searches to determine whether you are a Director. However, do they also do a search to determine whether you are a shareholder in the company. As I understand it, if you have a shareholding in a private company, it is listed on the ASIC register (as a member) and hence it is also searchable.
     
  19. Terry_w

    Terry_w Broker, Lawyer, Tax advisor, Debt Recycle advisor Business Member

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    I don't think they do.

    Directorships appear on peoples credit report, and that is what they rely on usually.
     
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  20. Harry30

    Harry30 Well-Known Member

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    It is quite common when working for small private companies to also sit on the Board of Directors (unlike large listed public companies where it is unheard of, other than for the CEO). While it is certainly not fatal, I guess if you wanted to be prudent and not fall foul of these bank rules, best to not take on a Directorship when working for a small company. Additionally, it is also common when working for small start ups to be offered shares as an incentive. Again, while this is not fatal (certainly if below 20%), any shareholder would appear to prompt questions and probing from the bank. Accordingly, maybe best to structure incentives as options to buy shares, with favourable ‘in the money’ strike prices but only exercisable at sometime into the future. Allows the staff member to have the appropriate equity incentives while keeping the shareholding at zero or below the bank threshold.