Private Health loss of Rebate for some

[medhead]

True but then I am now contracting out my services.Until this year it was $X + GST.With the economy going downhill it is now $X Inclusive of GST so certainly my marginal tax rate CF last year is above 50% in practical though not technical terms.

You always have the choice to set your rates as you see fit. (might help with the work life balance ) I simply have trouble with the idea that paying over money that was never yours in the first place is somehow taking something from you.

Then of course there is PAYG-provisional tax by another name.The ATO always assumes there will be an uplift in your income.You need to be sure if you want to challenge their assumptions.Now I will get that uplift back but at least a year down the track.

Yep and the first year they hit you with provisional tax they double it. Certainly seen the effects of that little joy first hand. At least it get resolved eventually. Do they still pay interest on over collected tax?

Anyway, I'm planning to use prepayment of tax to good effect for my points balance this year and hopefully avoid provisional tax complications - which shouldn't apply anyway, but as you say the ATO is a law unto itself.

 

[medhead]

I understand exactly what GST is and how it works. That's why I referred to every "extra $100 you charge" because as a general rule all quotes and charges must be inclusive of GST. If a self-employed taxpayer quotes say $250 per hour and bills for say 44 hours then the total charge rendered to the client will be $11,000. Of that $11,000, $1000 must be accounted for as GST, and of the remainder he or she will keep $5,350, which is 48.6% of the total charged.

As I said you can't lose what was never yours in the first place. The fee in your example is $250/1.1 and the GST is extra. They get paid $10,000, they collect $1000 in tax and they keep 53.3% for their fee. If the work is worth $250 per hour then they need to be quoting $275. GST is extra, always has been.

Out of curiosity what are some examples of those vast sums that are not deductible to you as an employee but which would be deductible to you if you did the same work on a self-employed basis? I can think of only a handful of cases where the self-employed get a deduction that is denied to the employed.

95% of my travel.

The effective rate you pay is certainly lower than your marginal rate (mathematically it has to be no matter how much you earn) but it's the marginal rate that operates as the disincentive to do extra work so it's the relevant factor in this discussion not the effective rate.

Yep and I mentioned that the marginal tax rate is the limiting asymptope for the effective tax rate. The maximum marginal tax rate is 47.5%, lower when considering super. And can not include GST.

 

[cove]

Our family have never viewed marginal tax rates to be a disincentive to work.
Every taxpayer has the legal right to arrange his/her affairs in a tax efficient way but that clearly excludes paper bags stuffed with cash.
Clearly the current Government thinks raising tax levies,introducing levies,new taxes and reducing rebates are more preferable than cutting the size of their Government. Now that is clearly rankling a lot of us in Western Australia.
The loss of the health rebate will hit just as the carbon tax gets started so that will hurt Melbourne and Sydney where business is already running tough.

 

[medhead]

Indeed! I would cut about 9956 pages from the tax act and make a large percentage of the ATO redundant for a start. Sorry to all the accountants.

 

[Stephen65]

@medhead

1. If you want to get technical that's not how the GST works. I do not collect $1,000 in GST for the government when I receive $11,000, no more than I collect $4,650 in income tax for them. Rather I receive the entire $11,000 charged and that receipt creates GST and income tax liabilities which I must satisfy from my general financial resources. The GST obligation is to pay a net amount calculated by reference to all of my taxable supplies and creditable acquisitions in the relevant period.

2. I haven't seen a price quoted ex-GST in my profession in a decade. The fee is simply the fee and is based on skill, experience and comparison with competitors. Nobody sits down to figure out the value of their work ex-GST and then adds GST to it.

3. While mathematically interesting effective rates remain irrelevant to whether marginal rates operate as a disincentive. I also do not see the relevance of super to the marginal rates of the self-employed.

4. I'm quite familiar with the rules for travel deductions and I am not aware of any distinction in their application to the employed as opposed to the self-employed. Without knowing what your travel patterns are I couldn't say definitely there is no difference but your travel would have to be outside all the standard cases.

 

[dfcatch]

@medhead

1. If you want to get technical that's not how the GST works. I do not collect $1,000 in GST for the government when I receive $11,000, no more than I collect $4,650 in income tax for them. Rather I receive the entire $11,000 charged and that receipt creates GST and income tax liabilities which I must satisfy from my general financial resources. The GST obligation is to pay a net amount calculated by reference to all of my taxable supplies and creditable acquisitions in the relevant period.

2. I haven't seen a price quoted ex-GST in my profession in a decade. The fee is simply the fee and is based on skill, experience and comparison with competitors. Nobody sits down to figure out the value of their work ex-GST and then adds GST to it.

3. While mathematically interesting effective rates remain irrelevant to whether marginal rates operate as a disincentive. I also do not see the relevance of super to the marginal rates of the self-employed.

4. I'm quite familiar with the rules for travel deductions and I am not aware of any distinction in their application to the employed as opposed to the self-employed. Without knowing what your travel patterns are I couldn't say definitely there is no difference but your travel would have to be outside all the standard cases.

Quite simply - as a PAYG employee - my travel from home to work is not deductible.

As a self-employed professional - my office is at home, therefore all travel from "home" to client site is deductible.


Happy to be corrected by a real tax accountant.

 

[cove]

I handed back my registration so don't expect me to correct you on any tax law as the Tax Act is continually being fiddled with by "experts".
I get a buzz running up points paying our taxes and to be honest I try not to get annoyed by Canberra mediocrity.
It is easier to shake it off and just keep running hard. At the worst so far it is a maximum of $1,300 per family member.

 

[Deleted member]

@medhead

1. If you want to get technical that's not how the GST works. I do not collect $1,000 in GST for the government when I receive $11,000, no more than I collect $4,650 in income tax for them. Rather I receive the entire $11,000 charged and that receipt creates GST and income tax liabilities which I must satisfy from my general financial resources. The GST obligation is to pay a net amount calculated by reference to all of my taxable supplies and creditable acquisitions in the relevant period.

2. I haven't seen a price quoted ex-GST in my profession in a decade. The fee is simply the fee and is based on skill, experience and comparison with competitors. Nobody sits down to figure out the value of their work ex-GST and then adds GST to it.

3. While mathematically interesting effective rates remain irrelevant to whether marginal rates operate as a disincentive. I also do not see the relevance of super to the marginal rates of the self-employed.

4. I'm quite familiar with the rules for travel deductions and I am not aware of any distinction in their application to the employed as opposed to the self-employed. Without knowing what your travel patterns are I couldn't say definitely there is no difference but your travel would have to be outside all the standard cases.

On point 2. I am constantly quoted ex GST. It annoys me no end. And we work out our fees then add GST. It is the only sensible way to operate.
On point 4 I get way more travel deductions than if I were not self employed ( you must not be doing it properly)

 

[Deleted member]

Quite simply - as a PAYG employee - my travel from home to work is not deductible.

As a self-employed professional - my office is at home, therefore all travel from "home" to client site is deductible.


Happy to be corrected by a real tax accountant.

Nope, that's how it works.

 

[medhead]

@medhead

1. If you want to get technical that's not how the GST works. I do not collect $1,000 in GST for the government when I receive $11,000, no more than I collect $4,650 in income tax for them. Rather I receive the entire $11,000 charged and that receipt creates GST and income tax liabilities which I must satisfy from my general financial resources. The GST obligation is to pay a net amount calculated by reference to all of my taxable supplies and creditable acquisitions in the relevant period.

2. I haven't seen a price quoted ex-GST in my profession in a decade. The fee is simply the fee and is based on skill, experience and comparison with competitors. Nobody sits down to figure out the value of their work ex-GST and then adds GST to it.

3. While mathematically interesting effective rates remain irrelevant to whether marginal rates operate as a disincentive. I also do not see the relevance of super to the marginal rates of the self-employed.

4. I'm quite familiar with the rules for travel deductions and I am not aware of any distinction in their application to the employed as opposed to the self-employed. Without knowing what your travel patterns are I couldn't say definitely there is no difference but your travel would have to be outside all the standard cases.

1: Prices increased when GST was introduced. The common practice in your industry is no indication ofy what is technically happening. Your fee is $10000 and you are have to add $1000 to that as GST. The fact that the GST rules require quotation of an inclusive price does not change what is actually happening. The GST is paid by your client not you. Credits for GST paid is simply a resort of the require for GST to be applied once only. This is entirely separate to income tax. Income tax is your liability and it is collected by the ATO from your GST is the liability of your clients and it is collected by you and passed on to the ATO. It was never your money in the first place. All of my suppliers quote both an ex-GST and inclusive price. That way they ensure they get the full value of their G and S.

2. I'm surprise that you are not getting the full value of your services. Again common practice in your industry is not an indication of what happens elsewhere or the legalities involved.

3. The mathematically interesting point about ETRs is they clearly show that the marginal tax rate is not more than 50%. Super comes into because there had been a suggest that Super increases the marginal tax rate, hence acting as a disincentive to earn, confusing the issue; much in the same way that GST is getting confused with income tax.

4. The fundamental difference has been mentioned. Self-employed also have a number of structural options available to them that the employed don't have.


Sent from the Throne

 

[drron]

You always have the choice to set your rates as you see fit. (might help with the work life balance ) I simply have trouble with the idea that paying over money that was never yours in the first place is somehow taking something from you.

Unfortunately I dont have the ability to set my rates.I either accept whats offered or do diddely.So going from + GST to GST included is not good for my work life balance.
However fortunately since retiring I actually love my work again.

But you are very right about the tax act though I think you are way too conservative with the number of pages to be cut out.An interesting old article on that-
tax laws

 

[medhead]

Unfortunately I dont have the ability to set my rates.I either accept whats offered or do diddely.So going from + GST to GST included is not good for my work life balance.
However fortunately since retiring I actually love my work again.

But you are very right about the tax act though I think you are way too conservative with the number of pages to be cut out.An interesting old article on that-
tax laws

The problem with being a price taker, I guess.

As for the tax act, I could write my ideal tax act on about 3 pages including title page and table of contents. Just I assume the lawyers would quickly expand that to a few hundred.


Sent from the Throne

 

[MEL_Traveller]

I am self-employed. I charge a daily rate which is followed by the words 'plus GST' (in small print). makes me look better value for money

 

[Stephen65]

1. GST is not paid by the client. It's a fundamental aspect of GST that it's an obligation levied on the supplier of the taxable service. As supplier you are directly liable, you aren't simply acting as a collection agent for amounts the client owes. That supplier must pay GST whether or not the client is entitled to an input credit. In our profession some clients will be getting input tax credits and some will not.

2. Prices are always quoted inclusive of GST in our industry. I believe there are some laws limiting your ability to quote exclusive of GST.

3. Re the travel, you aren't compared like with like. You are comparing the non-deductible cost of travelling from home to the principal place of work (which is not deductible for either the employed or the self-employed) with the deductible cost to you of travelling from home to a variety of client sites. However an employee who regularly travels directly from home to a series of client sites is also entitled to a deduction for travel costs. Establishing your principal place of work at home (as opposed to a mere home office) has practical and taxation pros and cons that mean it isn't suitable for many professionals. I couldn't practically carry out my profession from home so I have a separate place of business. Travelling to it is not deductible but travelling from it to client sites is.

PS: I'd accept that the self-employed usually have a bit more flexibility when it comes to their tax affairs than the employed but it's not a great difference in my experience if you're actually complying with the law. There is also vastly more administrative hassle and paperwork to waste time on and several tax disadvantages e.g. having to pay automatically uplifted tax estimates in advance.

PPS: Super is irrelevant to the marginal tax rates the self-employed face. First because contributing anything to super is optional for the self-employed and secondly because even if you do contribute it's just a tax deduction.

 

[medhead]

1. GST is not paid by the client. It's a fundamental aspect of GST that it's an obligation levied on the supplier of the taxable service. As supplier you are directly liable, you aren't simply acting as a collection agent for amounts the client owes. That supplier must pay GST whether or not the client is entitled to an input credit. In our profession some clients will be getting input tax credits and some will not.

2. Prices are always quoted inclusive of GST in our industry. I believe there are some laws limiting your ability to quote exclusive of GST.

3. Re the travel, you aren't compared like with like. You are comparing the non-deductible cost of travelling from home to the principal place of work (which is not deductible for either the employed or the self-employed) with the deductible cost to you of travelling from home to a variety of client sites. However an employee who regularly travels directly from home to a series of client sites is also entitled to a deduction for travel costs. Establishing your principal place of work at home (as opposed to a mere home office) has practical and taxation pros and cons that mean it isn't suitable for many professionals. I couldn't practically carry out my profession from home so I have a separate place of business. Travelling to it is not deductible but travelling from it to client sites is.

1. Let me try a question instead. You mentioned that you get an credit for GST on goods that you buy. Based on the principle that the tax office does give a deduction/credit to someone unless they spend money; How can you claim that credit if you haven't legally paid the GST on the item that you purchase? (that I say is tax paid by you and collected by your supplier) [-]As I said read up on GST. The supplier pays the GST because they have collected it from the client. The client is paying the GST. As for your profession, I can only repeat what is common practice for you does not mean that is the technical/ legal situation.[/-] I have a quote for professional services on my desk right now that says $X + GST. pure and simple I contract a service and I get taxed on that service.

2. What you do in your industry is not indicative of the legal situation.

3. All very interesting but completely misses the point. I well aware of the difference between work related and private travel. That is why I made my original statement that I can't claim expenses as an employee that I could claim if self-employed. In one case private travel becomes work related travel. So I am in fact comparing like with like. As you said you don't know my situation.


Sent from the Throne

 

[medhead]

PPS: Super is irrelevant to the marginal tax rates the self-employed face. First because contributing anything to super is optional for the self-employed and secondly because even if you do contribute it's just a tax deduction.

EXACTLY! Go tell that to the people who think that super adds to their marginal tax rate.


Sent from the Throne

 

[wmetz]

If after 15 years later, people believe that GST collected is part of their income, then its introduction has been a complete failure.
No one pays over 50% tax unless you are Ned Flanders.

 

[simongr]

I am stunned that there are people who still see GST as part of a professional service. For six years post the introduction of GST we quoted Fees + GST at [insert large accounting firm]. Some client struggled with that but we still quoted X + GST. Where however we quoted $X some clients tried to claim that price included GST so we had to be very explicit.

At the consumer end it is very different due to the lack of input tax credits. There I can understand quoting a figure including GST.

 

[JohnK]

May I suggest you read up on the GST, because that is not how GST works at all. That 1/11th is not paid by the self employed taxpayer; they collect it from the person who pays for their services and transfer it to the ATO. GST is additional to their fee pure and simple.

GST may well be additional to their fee/rate but don't make the assumption that a lot of self employed people are in a position to set their fee/rate.

e.g If one was earning $70 + GST /hour before the GFC now they may be earning $70 inclusive of GST. Sure they may be collecting the GST on someones behalf but their effective tax rate has increased.

 

[tim374]

Indeed! I would cut about 9956 pages from the tax act and make a large percentage of the ATO redundant for a start. Sorry to all the accountants.

And create anarchy in the process as nobody bothers paying tax anymore. Around 85% of ATO staff work in compliance. I'm struggling to think of too many roles that could be made redundant.