atw: Re: Companies that handle contractor admin work, insurances etc.
- From: Stewart Walker <helpfulau@xxxxxxxxx>
- To: austechwriter@xxxxxxxxxxxxx
- Date: Sun, 2 May 2004 16:25:55 -0700 (PDT)
--- Erisa Linsky <slinka@xxxxxxxxxxx> wrote:
> This aggressive tax planning model in the link you
> provided is about income
> splitting with a spouse or other party who is not in
> any legitimate way a
> co-earner of the actual money that is being split.
Yes and no.
If you read the description section, you will see that
it mentions:
1. "A taxpayer earning personal services income from
the provision of professional services pays an
arranger to organise a partnership with other
unrelated taxpayers." My commentary: for "arranger",
read contractor management company; for "other
unrelated taxpayers", read other contractors.
2. "The taxpayer pays to the arranger an upfront fee
and a continuing management fee." My commentary: most
CMCs I know of don't necessarily charge an upfront
fee, but they usually take a percentage of what your
clients are billed (or in the ATO's words, a
"continuing management fee").
I won't bore everyone with the rest of the details -
it's there on the web for those who are interested.
But in the section where the ATO explains what it
doesn't like about the arrangement mentioned, apart
from income splitting it also mentions "access to an
increased range of deductions".
All I'm say is to read the fine print carefully before
getting on board with a contractor management company,
particularly if they are based on a partnership model.
Of course, I am neither an accountant nor a lawyer, so
everyone should get their own independent advice
rather than relying on mine.
> That has nothing at all to do with the use of a
> management company, which
> enables a contractor to claim actual legitimate
> expenses incurred, which the
> contractor foots the bill for, out of her own pay.
> I would be very
> surprised if the ATO would be targeting such a
> contractor, who, really, is
> self employed, by most of the ATO tests.
> Quite the contrary, it's more normal for the
> employer to cover those costs,
> not the employee.
I agree. But the problem is that some CMCs allow and
sometimes encourage people to go too far in going for
perhaps dubious tax savings. However, if you play it
safe then there is nothing wrong with using one as an
alternative to being a sole trader or running your own
company. As always, "caveat emptor"...
Cheers
Stewart
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