Case Study | Change PSI to Personal Services Business

Objectives:

James is employed as a contract engineer at two different engineering companies. He would like to build wealth and save tax at the same time.

Facts:

• James contracts through his company and has income totalling $300,000 pa.
• Sarah, his wife, looks after their two young children and has nil income.

Accountant’s Advice:

• Tax Strategy 241: Change PSI to Personal Services Business (PSB) – This requires a minimum of two unrelated clients with the largest client accounting for less than 80% of the PSI income plus advertising the business to the general public through a website, newspapers, or online sites.
• Tax Strategy 239: Wages to Directors or Trustees – Appoint Sarah as a director and pay her a $50,000 salary and contribute $25,000 pa into super.

Results:

• An additional $25,000 pa is contributed into super for Sarah to help build the family wealth.
• The family saves $22,703 pa in tax (after allowing for Sarah and the super funds tax liabilities).