Student Doing Contract Work, Very Confused with How to Do My Tax

LJustJames111 on 06/07/2017 - 12:55
Last edited 06/07/2017 - 13:16

I work part time and I do a lot of contract work on the side and I'm not sure how tax works.
My part time work is easy to do as I'm on PAYG and I get a summary but my contract work I just get paid straight to my bank account.
All my contract work I had to provide my TFN so I'm assuming there's some way for the tax office to figure out how to track everything.

I don't get super from my contract work and tax usually is not mentioned with my contract work (some employers did PAYG others did not). I don't have the numbers fully down but in total I think I'm around the 60-70k mark for the last 6 months (very rough estimate) and I know I'll need to pay some taxes but I'm not sure how exactly I do this? I used to use etax before I worked contract work but now I'm not 100% sure on how to fill it all out correctly. I also have a lot of deductions for work/travel/expenses (which I should be able to do with etax) but i'm not sure how exactly do I account for all my income or if I'm meant to leave that out and let the tax people calculate it. I want to be able to utilize as much of the tax shield as I can (yknow NPV and stuff) so I'm trying to get this all done properly.

Also does my HECS start automatically taking money out of my income even though I haven't finished uni yet? I know if I'm working part time/full time and earn over 54k my employee will automatically start taking that out of my paycheck but what about contract work? After declaring everything will they suddenly just start sending me notices telling me to pay my compulsory 4% payments?

Currently 20 y.o, third year of uni with a year and a half to go.

I've tried googling all of it but a lot of it doesn't seem specific to me for example it mentions my employers should give me a PAYG summary and that 47(?)% of my income should be withheld (https://www.ato.gov.au/business/your-workers/contractor---ch…). I don't think any of my employers other than my part time job will be providing PAYG summaries and that 47% of income being withheld doesn't seem to make sense to me.

Any information or opinions at all would be greatly appreciated.

Financial

Comments

  • MrHyde on 06/07/2017 - 13:02
    +6

    I would have thought that if you were not on PAYG, you would need an ABN and be paid under that. Also, if you get more than $75,000; you also need to be registered for GST and should have been charging GST on your contract income.

    Edit: Suggest you go see an accountant and get this sorted.

    • JustJames111 on 06/07/2017 - 13:06

      Honestly, I'm just a student and I only took up jobs through word of mouth and thought it would be very easy just to declare how much I earned and let the tax people tell me how much I need to pay them. But come tax time, I'm completely (profanity) don't really know what I need to do.

      I'll look into the ABN stuff now but I don't think I've earned over 75k as I've only started taking up contract work at the start of the year so hopefully I don't need to worry about GST.

      • whydothismister on 07/07/2017 - 10:59
        +1

        over 20k income and operating as a business you MUST to be GST registered by law.
        You need to see an accountant before you try to lodge a tax return yourself.
        You should be charging GST on your invoices (which you pass to the ATO each quarter) but you also can claim back all GST paid for business related expenses. if youre earning over 50k in contract income, start treating it like the business it is. See an accountant,if you dont want to keep paying one each year, get them to prepare and lodge the first year, ask questions, take notes and then do what they did going forward. Good luck!

        • JustJames111 on 07/07/2017 - 11:04

          Thanks man yep I'm already taking a day off to speak to an accountant next week to sort this out.

        • goodcopbadcop on 07/07/2017 - 13:14
          +1

          When you contract your labour to other companies - you are classed as a operating as a business and that's why you need an Australian Business Number against your name. It is free to set one up on the ASIC website. As a contractor you should be sending invoices and paid on those. Once your business has earnt $75K in one financial year you need to register for GST and collecting/charging for it on your invoices. It gets complicated because you also have to do BAS statements every month then and pay GST to the govt that you've collected. Also if you have any deductions where you've paid GST then you can offset what you owe, every BAS statement. Yes for a student it is one more thing. So hopefully your income is under the $75K limit.

          Also you should only be paying back HECs once your taxable income reaches $54K. So it is a percentage of what you owe - not the whole lot in one lump sum. The ATO does calculate what you owe. And you can look that up as well I believe.

        • JustJames111 on 08/07/2017 - 01:08

          @goodcopbadcop: Thanks a lot that's the type of information I was looking for.

        • Nuggets on 08/07/2017 - 15:01

          Where did you get 20k from?

    • JustJames111 on 06/07/2017 - 13:11
      +5

      I've already mentioned I've been trying to educate myself on this topic however the information I found was mainly irrelevant to me. Why do you think I'm asking strangers on the internet for help?

      • gimli on 07/07/2017 - 06:30

        No it's ason jenova

  • Yorkshire-Man on 06/07/2017 - 13:20
    +2

    OK.

    There are two ways you are employed :-

    1. Your PAYG, your employer does your deductions. They withhold your Super, Taxes etc, you get the balance.
    2. Your a company contractor. You provide your ABN, they pay you the full amount & you sort out your own taxes / super.

    If you dont have an ABN your employer is likely being very dodgy here… see accountant for advise, you might want to chat to fair work afterwards (see accountant first).

    • JustJames111 on 06/07/2017 - 13:23

      I've had multiple employers working under a contract and none have asked for an ABN. I've already sent an email to them to see if they can address the issue.

  • Halo375 on 06/07/2017 - 13:24
    +3

    If in doubt, find a tax accountant to submit your tax for you. It's not expensive, plenty of accountants do tax returns in their spare time. Don't mess your taxes up, the ATO are VERY VERY eager to find people that aren't declaring all their income. Should cost you about $100.

    • JustJames111 on 06/07/2017 - 13:39

      Yep I thought eTax would be sufficient but I guess I need to speak to someone in person. Thanks for the advice!

      • Yorkshire-Man on 06/07/2017 - 13:55

        They should ask for your ABN, you should invoice them for your work. If not they are creating you an RCTI Invoice on your behalf. They are likely paying you the full amount inc tax & super. Expect a good sized bill.

        You should be PAYG, if you want a simple way to contract find companies like Ayres Management or CXC who manage all this for you (for a small fee).

        • JustJames111 on 06/07/2017 - 13:59

          I generally just keep a timesheet on excel detailing out expenses and hours worked as well as my bank details. No one mentioned that I had to do anything else. I was already under the impression I had to deal with the tax and super myself.

          I've been thinking of getting in touch with those types of companies but I've been quite busy and haven't been able to get around to it. I'll most likely have a look over the weekend. Thanks for the suggestion.

      • MrHyde on 06/07/2017 - 13:55
        +3

        eTax is sufficient if you have everything in order. In your case, either your employers have taken advantage of you or you are missing critical documentation that you should have got prior to starting contract work. Its best to get an accountant to sort the mess out this year and then from next year, you will be better equipped and can use eTax to submit the returns yourself.

        • JustJames111 on 06/07/2017 - 14:03

          What critical documentation should I have received prior to starting work? All I received were contracts which stated the terms of my work(what type of work im doing), employment period(start and end date if applicable), remuneration amount (hourly or budget), special circumstances(client contact outside of business hours). The usual stuff I expect to be on a contract.

        • MrHyde on 06/07/2017 - 14:19

          @JustJames111:
          Every piece of work you did should have required either your ABN or your TFN. Since you don't have an ABN, and its possible that you need to get one after the fact. This may have ramifications. I am not an accountant, so don't know what those ramifications are or how you get things sorted.

          Saying all that, maybe everything is all right and each of the employers you worked for will give you a PAYG statement - then no issues at all.

  • cypher67 on 06/07/2017 - 13:25

    I think you don't know what your employment circumstances are or how your employment has been setup. Go seek advice from the company/s contracting you, get more information. Ask for a tax summary. And yes as soon as you pass the threshold for HECs you must start repaying it. Side note, you sound super green and I'd recommend seeking some professional guidance, its a tax deduction and if you want to continue this line of work it would be worth it

    • JustJames111 on 06/07/2017 - 13:39

      Yep I thought eTax would be sufficient but I guess I need to speak to someone in person. Thanks for the advice!

      • daleyboy79 on 07/07/2017 - 10:40

        eTax is/was designed for basic tax returns and/or people who have a general idea of what they are doing.
        Neither seems to be your case.
        Go see an accountant … if you do have abn stuff to work out its going to cost you more than $100 for a decent tax agent (id budget for upto $250), but dont forget tax agent fees are deductible and they getting everything sorted properly now will cost you a lot less in the long run

  • Baysew on 06/07/2017 - 13:52

    Ask an Accountant https://www.ozbargain.com.au/node/313609

  • JetLi on 06/07/2017 - 14:21
    -1

    it's not an uncommon situation for those starting off, just go to your local ITP/H&R Block and they will explain everything you need to know face to face and sort you out. It's always better to deal with people face to face, that have a proper shopfront and have the proper tax agent registrations (i.e. tax agent number) which are transparent. You could go to a local qualified CA or CPA, but probably unnecessary for your situation as it's relatively straight forward. I would stay away from providers who only have an online presence and do everything via email as you don't know who's doing your work and what privacy security they have.

    • JetLi on 06/07/2017 - 15:31
      +2

      Another option is calling the ATO's general hotline for individuals, they are extremely helpful and they can run through with you what you need to do and how to complete your return through mytax/etax. Best thing is, it's a free service.

  • Ryanek on 06/07/2017 - 14:43
    +1

    Paging nicolemcmilllon

    Hmmm it would be good if you get notified if someone mentions your username eh?

    • nicolemcmilllon on 06/07/2017 - 14:47
      +8

      I am here within 4 mins! Faster than the speed of dial up internet!

      • Ryanek on 06/07/2017 - 15:36
        +1

        Legend!

  • zack1502 on 06/07/2017 - 15:24
    +2

    I am in line with you and no worries about that. I have done contract work as well and just fill the form for ABN exclusion. At the end of the year, you just put total money in the tax form then it work out how much you need to pay for the total income you got. If the amount exceed the tax you pay, the you will receive an invoice from ATO tfor that amou t.

  • meowzies on 06/07/2017 - 15:40
    +10

    Anyone else wondering what line of work OP is in earning 60-70k in contract work while doing uni and part time work?

    • JustJames111 on 06/07/2017 - 15:43
      +1

      IT consulting in the finance industry.
      I work minimum 20 hours a week part time, study full time(only attend compulsory classes and assessments), work between 0-40 hours of extra contract work a week depending on how I'm managing uni.

      • chriskq on 07/07/2017 - 17:51

        So on a busy week you work 60 hours plus attend classes and study?

        • JustJames111 on 08/07/2017 - 00:55

          I don't attend classes that I don't need to but yes I study in my own time.

    • ITveteran on 07/07/2017 - 18:13
      +1

      Sounds more like escort service.

  • EFC94 on 06/07/2017 - 16:36

    I could be completely wrong, but would you not just add up all the extra income you've earned throughout the year (assuming you've been keeping record of it somewhere) adding it as extra income on your tax return, then adding/take away your deductions?

    • JustJames111 on 06/07/2017 - 16:47
      +1

      That's what I originally thought, then when I went looking everything started to confuse me (such as the article I linked) so I posted here and it confused me even more with people talking about ABN's and GST.

      I got a straightforward response from https://www.ozbargain.com.au/user/199025 which cleared up everything.

  • whooah1979 on 06/07/2017 - 17:50

    All my contract work I had to provide my TFN

    why did or does your contract employer need your tfn? it doesn't make any sense.

    i'm just trying work out what their play is with the tfn.

    • JustJames111 on 06/07/2017 - 18:11

      I don't know. I just assumed it was a number used to track how much money they're putting into wages/salaries (expenses) and for the taxation office to keep track of how much you're earning.

      • whooah1979 on 06/07/2017 - 18:18
        +1

        I just assumed it was a number used to track how much money they're putting into wages/salaries

        that's what invoices are for.

        they've no need for your tfn and you're not required to provide them with your tfn.

        • JustJames111 on 06/07/2017 - 18:20

          Welp I'll know for the future.

  • whooah1979 on 06/07/2017 - 17:54

    I don't get super from my contract work and tax usually is not mentioned with my contract work (some employers did PAYG others did not).

    how many employers are you working for and how many of them are you working for as a contractor?

    • JustJames111 on 06/07/2017 - 18:12

      I've worked for many I don't have an exact number but it was 10+. All of them were agreed upon as contract work, not part time, full time or casual, but contract, on an on going basis as I'm needed.

      • whooah1979 on 06/07/2017 - 18:16

        All of them were agreed upon as contract work

        did you issue them invoices with your abn?

        • JustJames111 on 06/07/2017 - 18:19

          No as mentioned multiple times, I had no idea I needed an ABN.
          My invoices were basically just an excel document with my bank details, hours worked and expenses used.

        • whooah1979 on 06/07/2017 - 18:26

          @JustJames111:

          No as mentioned multiple times, I had no idea I needed an ABN.
          My invoices were basically just an excel document with my bank details, hours worked and expenses used.

          i see.

          these employers sounds a bit dodgy. they're employing you with the understanding that you're a contractor, but use your tfn for payments instead of your abn or lack of an abn.

        • JetLi on 06/07/2017 - 19:48

          @whooah1979: As you stated above, these companies contracting your services should have been withholding 47% from your contract payments given you had no ABN.

        • kiitos on 07/07/2017 - 20:36

          @JetLi:

          Isn't that what supplying a TFN avoids?

        • JetLi on 07/07/2017 - 22:45

          @kiitos: supplying a tfn doesnt mean anything if you are a contractor and not an employee. Look at the link above, it doesnt say ABN either/or TFN

        • JustJames111 on 08/07/2017 - 00:59

          @JetLi:
          @kiitos:

          What exactly does supplying a TFN to my employer do? I did a brief search on google but didn't yield many results.

        • JustJames111 on 08/07/2017 - 01:05

          @whooah1979: My payments were always directly through the company account into my account. I thought this was how contract work usually worked and at the end I just declare how much total I earned and pay whatever tax I need to.

        • JetLi on 08/07/2017 - 09:23

          @JustJames111: not sure, probably because their payroll department is just as confused when it comes to contractor payments and their obligations to withhold.

  • bonkers22 on 07/07/2017 - 09:18

    Just a side question, is your degree directly related to your contract work?

    Otherwise how else did you get businesses to trust you and where did you pickup the skills? Cheers.

    • JustJames111 on 07/07/2017 - 10:50

      Yes but my degree gives a bunch of useless basics I'm only doing it for the piece of paper at the end. Most things are self taught.

      Word of mouth, after my first contract I was given more and more work by the same company and the people I interacted with (CEO, CFO etc) helped with word of mouth. It's been a never ending stream of work which I can choose to take up when I get time or not.

      • robertbruce on 07/07/2017 - 15:37

        nahhh, you'll go back to those basics almost every day until the end of your career… pay an accountant, possibly a part-time process worker and do what he says asap, dont get caught up in software… slowly increase your prices to the companies that have been taking advantage of your naivety…

        Your at the beginning of something great, don't stuff it up trying to do it all yourself.

        At the moment Your Brand matters more than your wallet. Pay the money to establish Your Brand and you'll never have to look back…

        • JustJames111 on 08/07/2017 - 00:58

          I'll be honest with you none of the stuff I've learnt at uni (basics), I've actually used in the workplace.

          I have already arranged a day next week to meet with an accountant to sort this out.

          Thanks for the advice!

  • oO0Dam0Oo on 07/07/2017 - 09:20

    Most likely its a sham contract arrangement (Just saw no ABN no brainer you are not a contractor and should receive your entitlements as an employee). Id be going to Fair work myself. You wouldn't be a driver for a logistics company by any chance would you? If you supplied a TFN then your an employee. Simple. Not a contractor.

    https://www.ato.gov.au/forms/statement-by-a-supplier-not-quo…

    • whooah1979 on 07/07/2017 - 10:03

      You wouldn't be a driver for a logistics company by any chance would you?

      Op

      I work part time as a Systems Engineer

    • JustJames111 on 07/07/2017 - 10:50

      Nope, part time systems engineer, contract IT Consultant.

      • fryandlaurie on 07/07/2017 - 21:08

        I'm not going to lie. That's pretty impressive for a third year uni student. Keep up the good work and I hope tax works out. It's a learning process.

        If you don't mind me asking, is your IT consulting related to development as well or is it something else?

        • JustJames111 on 08/07/2017 - 00:57
          +1

          Depends on the client. I do work ranging from simple data migration consulting all the way to actual development work (php, c++, java etc). If I get a job requiring a skill I don't have I go through and teach myself the skills.

        • kiitos on 08/07/2017 - 09:06

          @JustJames111:

          Can I ask how much you get per hour? I suppose it might vary depending on the work required.

        • JustJames111 on 08/07/2017 - 11:15

          @kiitos: Minimum $50 all the way up to $280 depending on the client and how much I think I can ask.

        • kiitos on 09/07/2017 - 00:18

          @JustJames111:
          Nice!

  • oO0Dam0Oo on 07/07/2017 - 09:24

    Also are you on a student visa by any chance limited to 20 hours a week work unless on school holidays?

    • whooah1979 on 07/07/2017 - 10:01
      +1

      Also are you on a student visa by any chance limited to 20 hours a week work

      Op

      Also does my HECS

    • JustJames111 on 07/07/2017 - 10:51

      Aus citizen, I chose 20 hours a week as it's the minimum I can pick up part time to add to my resume.

  • Kidren on 07/07/2017 - 09:38

    The "student" line explains your decision making. You're young and naive (hopefully increasingly less).
    Take ownership of yourself and the situation and hire an accountant.
    At the very least if you get in trouble with the ATO, your effort to hire a professional will have you appear as someone not trying to abrogate their tax responsibilities.

    • JustJames111 on 07/07/2017 - 10:52

      I will be talking with an accountant on my day off next week.

      • Short Leg on 07/07/2017 - 11:36

        Good Decision James, the couple of hundred dollars fee is well worth getting this sorted out properly. Its not worth the mess if you get it wrong.

  • tohara on 07/07/2017 - 14:13
    +2

    You are going to get a rude shock when you lodge your tax return.

    You will owe tax on the income received for the contracting work. You'll also owe amounts for your HELP debt which presumably aren't being withheld by your employer, because as far as they know your income derived from them won't put you over the threshold.

    After lodgment you will be placed on PAYG instalments, this means you'll be required to make a payment into your client account for tax the ATO anticipates you'll be required to pay in the next year. This also assists in softening the burden (which you're about to experience) of getting hit with a tax bill. These are based on the assumption your contracting income will remain the same. If you reduce it or stop you will need to contact the ATO to vary your instalments.

    It's your duty as a contractor earning PSI to be prepared and to know how much tax you will need to pay. It's not up to anyone to withhold any amounts for tax or HELP unless you are their employee and are receiving receiving an income.

    I suggest you see an accountant and get it done this year. I think suggest you learn what they did and keep note to assist in preparing for lodgement in the next year.
    Keep a spreadsheet of income, expenses and how much tax you'll be required to pay on the contractor income.

    Source: Accountant

    • whooah1979 on 07/07/2017 - 15:13

      Source: Accountant

      as an accountant, you please tell us why op's employer/s are asking for op's tfn instead of an abn?

      • robertbruce on 07/07/2017 - 15:23

        so they can avoid withholding 40% withholding tax - is it still 40%?

        • JustJames111 on 08/07/2017 - 01:03

          47% I believe, so if they have my TFN they don't need to hold 40%?

          Just as a side note I'm being adequately compensated for both super and leave. A.k.a I'm being paid a lot.

        • robertbruce on 08/07/2017 - 08:15

          @JustJames111: it's something like that - Im glad your been paid well, take your chequ book to the accountants to pay him. sme's and slow payment are a real pita and he will do more for you if your prompt…
          Also get ready to process a huge back-log of stuff, your accountant really only produces a summary, it's up to your temp worker to sort the daily ledgers..

  • syousef on 07/07/2017 - 14:33

    ATO should keep tabs on OzB. I bet we get a whole slew of these queries on the discussion board over the next few weeks. Fortunately they're easy to skip.

    • Deridas on 07/07/2017 - 20:18

      Ozbargain is anonymous though, the ATO aren't going to get much return for their efforts. OP also really isn't trying to dodge tax…

      • Lysander on 07/07/2017 - 20:29

        Ozbargain is not anonymous. Your addresses, names, and IP addresses can be easily obtained through a subpoena if the ATO really gets serious.

        • JustJames111 on 08/07/2017 - 01:00

          I'm not trying to hide tax I'm trying to lodge it properly.

        • Lysander on 08/07/2017 - 03:55

          @JustJames111:

          I was not even thinking that. Just replying to Deridas, not you.

        • syousef on 08/07/2017 - 15:14

          @JustJames111:

          …and there's a good chance you (and everyone else asking for tax advice here) will get it wrong or end up having a client stuff you around over it. Once you break the rules, even inadvertantly, they can step in.

  • aquamarc on 07/07/2017 - 23:26

    OP's contract income would be expenses to the Contracting company. They would require his ABN on file else systems should automatically withold 47% tax unless manually overriden. Doesn't seem likely an IT outsourcing company would not follow due process.
    If they are paying him on TFN/labour hire then they MUST provide PAYG Summary with tax witheld. So no issue for the OP there. Just wait till all PAYG's come in.
    Deductions seem to be computer hardware which might need to be depreciated and car travel which the op must be careful about. in addition to home office if he trouble shoots from home.

    • JustJames111 on 08/07/2017 - 01:01

      I have a lot of deductions such as work laptop, phone (80% work related), office space, various licensing expenses and more. Those are easy for me to keep track of.

      Payments were always made directly from the company bank account to me so I'm not sure if that affects anything.

  • [Deactivated] on 08/07/2017 - 08:52

    There is part of me that wonders/hopes if the OP's contract work is as a hitman.

  • cintamami on 08/07/2017 - 10:32

    Hi JustJames111

    From the sound of it. Your contract works would have been treated as business income, depending how much deductions you incurred, you could be up for quite a big hit, imagining $60-$70k income with no taxes been paid / withhold.

    If your 6 monthly income is around $60-70k mark, you should have registered for GST because as soon as you can foresee your business income to be more than $75k per annum, you need register for GST.

    When you do your income tax return from mytax, if you are keen on try doing it yourself.

    1. You put in your PAYG Summary;
    2. You put in your other income, i.e. interest or dividend or anything else that you may have earnt outside employment;
    3. Then you go to the business schedule and put in your business income for the year, and at the bottom sections, there should be expenses section where you can put in your business expenses against that business income, also have a read about "Personal Services Income (PSI)", if your income is deemed to be PSI, there are expenses that you may not be able to claim against it;
    4. Do not forget to put in the small business tax offset that would be available to you;
    5. Being a small business, you can write off any assets/equipments that you purchased for your business that is under $20,000, i.e. laptop, perhaps some other furnitures for your home office.

    I suggest that you go a tax accountant such as myself or anyone of your choice. I think our advise and "thoroughness" (LOL) will save you heaps more in tax compared to our fees.

    I would also like to bring to your attention about sham contracting, you should google it up. Fairwork has a good write up about it. It's basically, even though you are a contractor running your own "deemed" business, you can still be considered as no difference to an employee and as such your employer/client will still have to pay super on your income.

    Of course, in the real word, if you needed the money and in good terms with your client/employer, you may not want to shake the boat, but I think you should know about this for your own information so that you can make your own informed decision when the time comes for a contract rate negotiation or anything else for that mattes.

    I am not saying that your client/employer is doing sham contracting, but due to lack of information, I just like you to check it up and see whether they are doing it to you.

    Hit me with private chat if you want to discuss more :).

    Kind regards

  • Marcsie on 08/07/2017 - 10:57
    +1

    So simple, go to an accountant, problem solved :)

  • [Deactivated] on 08/07/2017 - 17:12

    you dont

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