Contracting v. Salaried Employment

[sjk]

So, freelance versus salaried.

My husband and I freelance, and each make about double the highest in-house salary we've heard of, either anecdotally or when people ask us to work in-house and tell us "we can't pay any more than that".

Downsides are that we have to cover our own super etc. (easily enough done), and have no paid leave, work six-day weeks, etc. As well, of course, as being buffeted by market forces and other circumstances beyond our control from time to time. Which can swing both ways, and having multiple sources of income also helps to mitigate the risk.

Much of the choice comes down to risk/reward rather than 'bravery' or 'cowardice'. (Potentially interrelated) reasons to stay in-house in our industry may include a more risk-averse mindset, willingness to settle for a lower salary, a lack of outside options, difficulty selling oneself, limited applicability of one's skill set to other employers, geographical factors, and pure personal preference. If you live somewhere where your employer is the only game in town, you're left in a tricky bargaining position.

Inertia also enters into the equation: just as I can no longer imagine working in-house, those in-house may find it difficult to envisage a new way of working, or struggle to get beyond the daydreaming stage.

I find it's an easier world now than when I was starting out, just in the sense that employers are more willing to consider different forms of employment rather than just the traditional 'salaried' option.

 

[drron]

Your tax advisor should have got a private ruling in the first instance, they are binding.

But they didn't have Private Rulings then.As I said cases like this led to Private rulings.

 

[serfty]

[Moderator hat]

Some off topic posts have been removed from this thread!​

[/Moderator hat]

 

[lovetravellingoz]

But you see, none of that is written into law anyway. You are taking a moral and practical stand which is fine but that isn’t the way the law of theft works.

Well to me it gets down to, do you have the permission (whether implied or direct) of the owner of the item to take it? If not then in my simplistic view is that is theft.

I will leave it to the legal eagles as to the "way of the law".

 

[rock86]

But they didn't have Private Rulings then.As I said cases like this led to Private rulings.

Ah fair enough, must have misread your previous comment.

 

[Cossie]

As someone who has worked for the government, in the private sector and as a contractor, if you think you have the skills to deserve more than what you currently get, then go out there and prove it rather than coughing and moaning about how hard done by you are and how life isn't fair.

I dare say a lot of us are very tired of hearing about it!

 

[burmans]

As someone who has worked for the government, in the private sector and as a contractor, if you think you have the skills to deserve more than what you currently get, then go out there and prove it rather than coughing and moaning about how hard done by you are and how life isn't fair.

I dare say a lot of us are very tired of hearing about it!

Hear hear, but probably not going to happen, it's always easier to blame someone else than take personal responsibility for your own outcomes.

 

[travelislife]

We should be able to claim costs related to employment. Some people live 5 minutes from work, others live 2 hours from work and spend $100 on travel to/from work and others live even further and spend even more.

Seriously? It is your personal choice where you live and where you work. No one forces you to live somewhere or work somewhere. Don’t like it, move, change jobs, etc.

A very slippery slope opening up everyone to be able to claim tax on things such as this.

 

[Vic]

Income tax is a strange one and not very consistent.

What's the difference between a salaried computer programmer and a sole trader/contracted computer programmer paid the same to work in an office?

One pays more tax than the other which is a joke.

That's getting into rorting the contracting system. a contractor/sole trader has to pass ATO tests to be considered a legitimate contractor. A sole trader has extra risks and expenses. They have to pay themselves super from the money they earn.

 

[JohnK]

Seriously? It is your personal choice where you live and where you work. No one forces you to live somewhere or work somewhere. Don’t like it, move, change jobs, etc.

Not as easy as it sounds.

A person in the USA was commuting 5 hours each way each day as they did not have a car.

If yu need money then you need to go where you can get a job.

A very slippery slope opening up everyone to be able to claim tax on things such as this.

That's right. Let's just leave the slippery slope for the contractors as they are doing it tough.

I'm paying too much tax. Think it's getting close to the time to cut the losses and start getting back the money I put into the tax pool.

The mistake I made was taking the job in Brisbane in 2008. I should have sold the unit then and paid off the debt and sat around at home living off the rent with my health care card taking care of medical expenses. And as I would have been out of work the capital gain tax would not have been $70,000. That's what I should have done. Stupid mistake.

 

[travelislife]

Not as easy as it sounds.

A person in the USA was commuting 5 hours each way each day as they did not have a car.

If yu need money then you need to go where you can get a job.


That's right. Let's just leave the slippery slope for the contractors as they are doing it tough.

I'm paying too much tax. Think it's getting close to the time to cut the losses and start getting back the money I put into the tax pool.

The mistake I made was taking the job in Brisbane in 2008. I should have sold the unit then and paid off the debt and sat around at home living off the rent with my health care card taking care of medical expenses. And as I would have been out of work the capital gain tax would not have been $70,000. That's what I should have done. Stupid mistake.

I have never heard anyone blame the government so much for their own situation!

You have clearly said you own investment properties. A decision of yours. Is it the governments fault if you make money on those properties, what if you lose money? You have clearly said you believe everyone is rorting the system? If you are paying CGT you are clearly making money, which is a good thing. I would like to think you have made more than $70,000 since 2008 rather than just sitting around.

No individuals is special in the eye of the 'system'. The smarter ones just use the same system available to you and I in a smarter way. I am pretty sure the exact same rules apply to you, so why not play by them?

There is no point whinging, just make a change if you aren't happy with where you are. Sometimes easier said than done. But don't blame the government for your own decisions.

 

[rock86]

Not as easy as it sounds.

A person in the USA was commuting 5 hours each way each day as they did not have a car.

If yu need money then you need to go where you can get a job.


That's right. Let's just leave the slippery slope for the contractors as they are doing it tough.

I'm paying too much tax. Think it's getting close to the time to cut the losses and start getting back the money I put into the tax pool.

The mistake I made was taking the job in Brisbane in 2008. I should have sold the unit then and paid off the debt and sat around at home living off the rent with my health care card taking care of medical expenses. And as I would have been out of work the capital gain tax would not have been $70,000. That's what I should have done. Stupid mistake.

Assuming you held that rental property for more then 12 months (which it sounds as though you did), and assuming you were on the highest tax bracket at the time (this is a complete guess) you would have made a gross gain on that property of around the $300,000 mark if the net capital gain cost you $70,000 in tax.

I cannot believe someone is sitting here whinging and blaming the government for getting taxed when they have made good money off investment property.

Talk about first world problems of the baby boomer.

 

[sjk]

The mistake I made was taking the job in Brisbane in 2008. I should have sold the unit then and paid off the debt and sat around at home living off the rent with my health care card taking care of medical expenses. And as I would have been out of work the capital gain tax would not have been $70,000. That's what I should have done. Stupid mistake.

Does it have to be so binary? Couldn’t you have taken a year or two to retrain/upskill?

 

[JohnK]

I cannot believe someone is sitting here whinging and blaming the government for getting taxed when they have made good money off investment property.

Talk about first world problems of the baby boomer.

LOL. I don't agree with the tax system. Especially capital gains. My risk, my gain. Am I allowed to think that way or am I breaking some sort of law? That's the simple part.

The complex part is understanding my problems and unfortunately you don't have all the information to make that judgement on what is and isn't a first world problem for me.

Long live freedom of thought and the ability to express them.

 

[Pushka]

LOL. I don't agree with the tax system. Especially capital gains. My risk, my gain. Am I allowed to think that way or am I breaking some sort of law? That's the simple part.

The complex part is understanding my problems and unfortunately you don't have all the information to make that judgement on what is and isn't a first world problem for me.

Long live freedom of thought and the ability to express them.

But conversely if you lose money on investments you can recoup losses.

 

[JohnK]

But conversely if you lose money on investments you can recoup losses.

Only if you have a capital gain.

If I now buy $100,000 in shares and earn dividends I pay tax on the dividends. If those shares become worthless then I have a capital loss which can only be offset against a capital gain? Correct? But If those shares double in value then I pay capital gain.

I've taken all the risks. The ATO has taken zero risk but they want a cut of the profits. What a con and I'm allowed to think this part of the tax system is so wrong beyond belief.

 

[CaptJCool]

Its

But conversely if you lose money on investments you can recoup losses.

losses can only be recouped against future gains. But gains are taxed when they occur.

It's well known employees face higher income tax as they can't deduct all that's available to a contractor WITH AN ABN and/or using a business structure other than individual
Weighing up the benefits and drawbacks of contracting | CXC Global

One arrangement is safe and secure regardless of reputation and gross income is generally net income taxed in full, with a lot of employer off-book costs not borne by the employee (super, workers comp, travel, GST, GST Credits) the other involves risk of where the next job is coming from....and endless deductions....and reduced prices (cars discounted for ABN holders) and income-splitting often claiming all of these where the employee can't split income with their non-working or lower paid spouse let alone adult children or other relatives, or recruitment company and payroll company fees and charges and profit margins and income protection, do on so forth

We did a back of the envelope calculation about the difference in gross v net so someone who earns $500 a day as an employee would need to gross $1,500 - $1,800 per day to finish in the same net position of paying the same amount of income tax. But that's a rough calc.... none of the online calculators help. And this whirlpool suggests triple How to calculate contract rates ? - IT/Telco - Jobs

 

[lovetravellingoz]

I've taken all the risks. The ATO has taken zero risk but they want a cut of the profits. What a con and I'm allowed to think this part of the tax system is so wrong beyond belief.

You have a unique way of looking at things.

ATO? Collects tax of behalf of all Australians including yourself. FYI the ATO also does not decide what taxes are charged and at what rates. The politicians do all that.

Tax?

• By and large the countries around the world, including Australia, where post people wish to live as the standard of living and political freedoms etc being high are amongst the higher taxing ones.
• Do I want to minimise my tax? Most certainly and I will use the rules to the full advantage that I can.
• Would I want to live in a country without tax? No, it would be bedlam. Tax is one of the great inventions that has allowed civilisation to flourish. Which is not to say that how it is collected at times cannot be questioned.

PS: What is the right way to tax by the way?

 

[dajop]

Only if you have a capital gain.

If I now buy $100,000 in shares and earn dividends I pay tax on the dividends. If those shares become worthless then I have a capital loss which can only be offset against a capital gain? Correct? But If those shares double in value then I pay capital gain.

What if you were a person that owned $80,000 of shares, and didn't work. The shares doubled in value in just over a year, so you sell after 12 months and earn $80,000 and therefore pay tax on $40,000 of that income. So you pay $5,347 in tax and end up with net earnings of $74, 653. Your neighbour works and earns $80,000 in the year, they pay $19,147 in tax and end up with net earnings of $60,853.

Everyone has different circumstances, and somethings will suit some, others will suit others.

 

[JohnK]

PS: What is the right way to tax by the way?

Consistently.