Many clients ask why they should setup a Pty Ltd company. The most appropriate structure you choose really depends on a number of factors including the type of industry, value of assets, number of employees, future growth, net profit, ownership and tax implications. Therefore, you should really speak to your accountant so they can go through the situation and work out what is the best structure for you when becoming a contractor. Setting up a company means you must register the company with the Australian Securities and Investment Commission and lodge annual company tax returns with the Australian Taxation Office.
There is a clear advantage that small Pty Ltd companies (less than $25 million turnover) have. Companies will pay a corporate tax rate at 27.5% which is significantly lower than the highest marginal tax rate for individuals of 47% (including Medicare levy). Note these rates are based on the 2018-19 tax rates.
Other great benefits of owning your own Pty Ltd company are:
Keep your business separate from your personal assets.
Having the business under a company can create an impression that the business is much larger than it really is.
Companies prefer to deal with companies
Companies believe that it is less risky to deal with companies then individuals as the company is a separate legal entity.
A company will exist indefinitely (unless it is wound up) which will enable you to sell the company when you retire or resign.
The company is separate from its owners and thus the owners will not be forced to pay for their company’s debt.
If you want to learn more about companies, have a look at the ASIC.
Check out our guide you would like to know more information about companies vs sole traders.
Ultimately, becoming a contractor or setting up a Pty Ltd company boils down to your priorities and situation. Feel free to discuss your options with us at Box Advisory Services. We offer a 100% free business consultation in which we can discuss what option is the best for you.
Please note that every effort has been made to ensure that information provided in this guide is accurate. You should note however, that the information is intended as a guide only, providing an overview of general information available to contractors and small businesses. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal or tax advice. You should, where necessary, seek your own advice for any legal or tax issues raised in your business affairs.