Case Study | Change PSI to Personal Services Business
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.
- 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.
- 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.
- 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).
"You’d be stupid not to try to cut your tax bill and those that don’t are stupid in business"
- Bono: U2