New to contracting in Australia and need some payroll/tax advice!

August 5, 2009 7:39 PM

New to contracting, and new to Australia. Can someone please help me find a company to sort out my insurances and payroll (and the 'living away from home allowance' -- or recommend an accountant if I need one?

I am living in Melbourne, Australia on a working holiday visa. I am currently working a 3 month contract (intranet development) for a healthcare insurance company. I got hired through a recruitment agency. I have never worked as a contractor before.

The recruitment agency will pay me a daily rate but I need to have all the workplace insurances and payroll sorted out. They recommended Ayers Management, who they normally work through. Ayers works by taking 3.5% of your pay, and that covers their 'service fee' -- they pay you and take care of all the workplace insurances you need.

I also have the option of setting up my own company but I believe this will be expensive and complicated. I don't know if I will work as a contractor again after this job.

I kept asking Ayers for a breakdown of what taxes I needed to pay as I do not know much about the income tax rates, superannuation, etc. They took a long time giving me a breakdown, and thought I would be eligible for the 'living away from home allowance' (I'm Canadian.) After they determined I was eligible for this, they gave me a breakdown. According to their calculations, the LAFHA will give me more take-home pay. This seems great, except if I use the LAFHA, they jack up their 'service fee' to 7.5%. It still means slightly more take-home pay for me, but I was irritated by this.

I have also began looking at other similar companies (I don't even know what to call them...payroll management companies??) such as Geoffrey Nathan, and Free Spirit, who seem to be more tailored to people who can claim the LAFHA.

But when I get a 'quote' they all have vastly differing income tax, superannuation, and 'service fee' deductions. I don't want to be in a situation where I end up paying tax at the end of the year.

I'm wondering if I should talk to an accountant because I can't get my head around all the payroll deductions and taxes I need to pay, and I don't understand why these companies keep quoting me different tax rates.

Can anyone point me in the right direction or recommend a good accountant I could talk to for advice? (I'm working in Hawthorn, Melbourne)

Sorry if this is confusing, I really am lost. Let me know if more information would be helpful!

posted by Flying Squirrel to work & money (9 comments total)

Talk to an accountant. These companies want your salary. They don't care if you end up having to pay tax, so they will consistently low-ball requirements.
posted by smoke at 7:49 PM on August 5

Are you sure they want you to set up a company? If you register for an ABN (Australian Business Number), you can invoice your "employer". As far as I know, the process is free. Nearly any accountant would do to sort this situation out for you (ie, arranging for ABN, BAS statements (if necessary), tax obligations). Don't go to a tax agent (eg ITP, H & R Block).
posted by b33j at 7:56 PM on August 5

I have always found the Australian Taxation Office to be very helpful with all sorts of enquiries. I recommend that you phone them on 13 28 61 and ask as many questions as you like. You can do this anonymously if you wish.

This site explains the living away from home allowance. Part of their explanation includes the following:
"A very common misconception is that a contractor holding a Working Holiday Visa is able to claim LAFHA. This is NOT the case and is clearly stated in the ATO draft legislation for this allowance."

Some other sites that may be of interest are:
Tax for working holiday makers
Working in Australia - overview - from the ATO

With the information given by the ATO you should be able to work out your own tax/superannuation/workcover issues and avoid paying the commission to an agent. The ATO will also help you work out if and how you can claim your tax and superannuation back again after you leave the country.

Enjoy your stay!
posted by Kerasia at 9:09 PM on August 5

Oh the other thing is, if you have an ABN and you earn under - it was - $50 000, you don't have to charge or pay a General Services Tax, which makes things a lot easier.
posted by smoke at 9:31 PM on August 5

Smoke - I think you mean a Goods & Services Tax. And it's $75,000 now.
posted by b33j at 11:04 PM on August 5

Yes sorry, that's what I meant. Ha ha ha, it's been so long since I had to worry about this stuff.
posted by smoke at 11:50 PM on August 5

Thanks for the info so far.

I saw that brainbox site too, Kerasia, but it's from 2003 and I think the information is out of date. I believe I am now eligible for the LAFHA.

I do believe I need to go through one of these companies, because setting up a company and getting all the necessary workplace insurances is too much of an expense and pain. If anyone has experience working through one of them I'd be interested in hearing from you.

Many thanks.
posted by Flying Squirrel at 1:21 AM on August 6

Contractor in Australia here. You don't need to use this company IMO. Get an ABN from the ATO (online) and you're in business!

What I'd do in your situation is arrange any insurance that your client requires, which may be none.

If you are contracting, your employer won't withold any tax - you have to fill in a tax return at the end of every financial year, and pay your own taxes. If you save about 30% of your income to put towards taxes, then that should cover it all, and you'll have a little nest-egg of leftover tax to spend on whatever you like.

You don't need to worry about payroll/PAYG, probably not GST, probably not superannuation (although my acct. tells me that clients are liable to pay contractors' super at 9%).

Any accountant worth his or her salt will be able to take into account LAFHA and any other deductions.

Mail me if you want an insurance broker recommendation.
posted by cogat at 1:45 AM on August 6

Thanks everyone, I have decided to get an ABN and work with an accountant. I feel better already. Thanks for the help!
posted by Flying Squirrel at 1:05 AM on August 7