Now that you have established that you are a contractor, what do you need to do to set yourself up as one?

With so many contactors working within the Allied Health Services Industry we get asked this question all the time. We have gathered together all the information you need to set yourself up as a Contractor. Simply follow the following steps…

So, below we have set out the simple steps you need to take in order to set yourself up correctly as a contractor.

Step 1:  Trading Structure

A very important question, and one which can been the difference between pay more or less tax! When setting up as a contractor you first must decide on a structure to trade through. The four most common trading entities are:

Sole Trader: a type of set-up whereby your business has no separate legal existence from yourself as owner. You can use a business name or your own name and as the sole trader you are responsible for the liabilities of your business. Set-up costs are relatively inexpensive; therefore this is an ideal structure for starting with if anticipated profits for the first year are less than $80,000.

Partnership: involves starting a business with one or more partners whereby all partners legally share profits, risks and losses according to the partnership contract, which you establish at the onset of the business. The partnership agreement is vitally important so talk to us about what is in this contract before running off to your local solicitor.

Company (Pty Ltd): a proprietary limited company is the most common type of structure used by small business. Unlike partnerships and sole traders, it has more regulatory requirements and is a legal entity separate from its shareholders/owners.

Trading Trust: is an entity that holds property or income. When set-up, the trust appoints a trustee (a person or company) to manage it. The trustee is responsible for distributing income, to the beneficiaries provisional tax.

To determine which structure is best suited to you and your current circumstances, you should talk to us here at Paris Financial and we can assist you with the important decision.

Step 2:  Registering for ABN, TFN and GST

You will need to apply for an Australian Business Number (ABN); this can be done at the Australian Business Register.

Sole traders will use their personal Tax File Number (TFN) and will report both business and personal dealings annually, on the one tax return. However, partnerships, companies and trusts need their own TFN. You can obtain a TFN at the same time as your ABN, using the same application form, available at Australian Business Register. Sole traders need an ABN in addition to their TFN.

You will need to register for Goods and Services Tax (GST) if you anticipate your annual turnover to be greater than $75,000. You can register for GST at the same time you apply for your ABN and TFN at the Australian Business Register. After you have registered for GST, you will be required to lodge a Business Activity Statement (BAS) with the Australian Taxation Office (ATO) on a quarterly basis. You will automatically start receiving BAS based on the information provided on your application. That is, you will elect to either have these Statements sent directly to you and prepare them yourself, or you will elect for a tax agent to receive them on your behalf.

Step 3:  WorkSafe…are you covered and who pays?

This is a very important aspect for contractors, you can not automatically assume you are covered by WorkSafe through the employer you are working for. The following points will assist you in determining if you are covered, or how to be covered.

  • You must ask your employer if they deem you to be a ‘worker’.
  • If your employer considers you a ‘worker’ then it is there responsibility to cover you under WorkSafe.
  • If your employer does not consider you a ‘worker’ then you are not covered under your employers WorkSafe policy and you will need to do one of the following options:
  1. If you are a Sole Trader you are not eligible to be covered through WorkSafe and will need to take out Personal Accident and Risk insurance cover.
  2. If you are a partnership, company or trust you will be eligible to be covered through Worksafe and can apply for coverage at WorkSafe.

Step 4:  Superannuation

To ensure your financial future, superannuation is essential. A contractor may or may not be entitled to superannuation from your employer. Ask your employer if they are paying you super. If they are not, you then to ensure you speak with your financial advisor and arrange a superannuation plan for yourself.