John James, a young employee electrician, visited his Ellenbrook, WA accountant to prepare his 2017 tax return. During discussions John talked about the difficulties of being a sole income family, and how he would like to increase their family cashflow and save tax.
- $98,540 wages income.
- Wife (not working) and one child.
- $8,600 motor vehicle, tools and other work deductions.
- Current tax paid – $20,910.
- Tax Strategy 77: Change from an Employee to Contractor – This involves changing the working relationship from an employee to independent contractor and requires the employor’s approval. ABN and GST registration required.
- Tax Strategy 137: Husband and Wife Partnership – Requires operating the independent contracting business as a partnership. Requires written partnership agreement, partnership bank account.
- Tax Strategy 101: Reducing Super Guarantee Payments. As the current employer will not be liable for the 9.5% super guarantee payments, the partnership contract income can be increased by $9,361 pa instead.
- Tax Strategy 140: Change PSI into Business Income.
The partnership can start advertising and completing extra electrical jobs on weekends and after hours. This generates extra income and starts to build the business goodwill. Opportunity to further expand in the future by adding employees/contractors to complete some of the work and scale the business.
- Reduces tax payable from $20,910 to $12,324 per year.
- Cashflow increased $17,947 (incl tax savings).
- Gains business experience whilst building their business.