The ATO has the “Personal Services Income” legislation (PSI). Basically, if you are an employee then you pay tax of up to 46.5%. However, those lucky enough to own genuine businesses generally only pay tax at 30% (and often a lot less).
There is a guy called Mr Fowler. He thought that this was just really unfair. He decided to do something about it.
Mr Fowler, the computer consultant formed a company. He was the sole shareholder, sole director and sole employee – it was just Mr Fowler. But his company (not him) entered into contracts with labour hire firms where Mr Fowler worked for different companies at an agreed hourly rate. (Pretty much, like how you employ your staff isn’t it?)
Mr Fowler generally worked at their offices with their equipment and software. (Not much of a business here.) Mr Fowler was courageous. He said that only his company could derive the income since it owned the trade debts and all other business assets. That was just out and out silly.
The Administrative Appeals Tribunal stated that the PSI rules taxed income in the hands of the person who did the work. The only guy working in this company was Mr Fowler. The fact that you have a company in the way doesn’t stop PSI from shattering your dreams.
There are ways to work around the PSI rules and you should Contact Melanie Jenkins to make sure your structures work as a genuine business.
Source: LawCentral Bulletin 14/11/06