This section of the BAN TACS web site is intended to assist tradesmen and women who are just starting out on their own. If you are already well established in the industry then you will probably find the small business section more useful. Typically your boss or an associate says to you; get your ABN and I will pay you more and you can start your own business. Stop right here and make sure you see an accountant first because there are several issues that need to be discussed in relation to your particular circumstances. For example:
Employee or subcontractor – There is much detail about this in our subcontractors booklet. This is a dangerous area. If you get it wrong the tax office could make you pay additional tax and superannuation and if your subcontractor is injured or dies you could be liable. If you’re paying someone primarily for their labour and they are not operating as a company or trust you should take the test at this ATO link: http://www.ato.gov.au/businesses/content.asp?doc=/content/00095062.htm&mnu=42711&mfp=001/003
Business Structure – If you operate in your own name as a sole trader you cannot distribute income to other members of your family unless they actually work for it. You would not be able to distribute income to other family members anyway, if you are simply paid for your labour. If you are paid to produce a result, for example if you make a mistake you have to fix it at your own cost, then you maybe able to distribute income to other family members. The simplest way of doing this is through a partnership and the ATO is much more lenient with partnerships splitting income rather than using a trust. The trouble is operating in your own name or a partnership does not give you asset protection, a trust may but in some trades such as gas fitting you are always going to be personally liable. Taking the next step to a trust is costly for both ongoing and initial set up costs. If you are in Queensland and wish to operate through a trust the QBSA requirements are much higher but you are still going to be personally liable anyway.
Registering for GST – Usually the person you contract to wants you to be registered. They get the GST they pay you back off the ATO anyway and being registered means that anything you have to buy for the business will be cheaper because you will also get the GST back on your expenditure. Nevertheless, you do not have to register for GST unless your anticipated turnover exceeds $75,000.
Quoting – When you set the price you will charge on jobs you will probably use an hourly rate as a basis. This hourly rate needs to be considerably higher than the amount you were earning as wages. You need to factor in GST, non chargeable time such as quoting, doing your paper work and when you can’t work in the rain. Don’t forget you will need to earn enough to put aside for your holidays, sick leave and income tax. Then there are tools, materials, motor vehicle expenses and insurance at a very minimum. Maybe you should also consider how reliable your industry is. Will you get paid for every job your do? If the contract is for your labour then the person you contract to maybe liable to pay the superannuation guarantee of 9% for you but the reality is they very rarely do, so this should also be priced into the quote.
The above is not even the bare minimum, you must see an accountant but before you do you might like to read the material provided in the links on the top right of this page to help you prepare your questions. Make sure you subscribe to our free Newsflash so we can keep you abreast of any changes.