Business structure

[BlueSky]

I had a 6 month contract initially so made sense to be a sole trader and be GST registered after coming off paye employee.
As I am able to secure another 6 months as contract has grown is it worth it to change to a normal company. My partner will be working alongside me for 20 percent of the time.

[Perry]

Partner? Business, sleeping, matrimonial, what?

A Partnership may be easier; a company may be less risky.

Either would likely require a new GST number.

[BlueSky]

Partner? Business, sleeping, matrimonial, what?

A Partnership may be easier; a company may be less risky.

Either would likely require a new GST number.

how about keeping as is and sub contract or paye ?

[Perry]

If you want that sort of analytical detail, you need to talk to an acct.

There are several who post on PT.

[Anthonyacat]

An individual employing a spouse requires special approval from the IRD. Subcontracting may be alright, I don't recall and haven't had to deal with it in a while.

There aren't many downsides to incorporating a company. Either a regular one, or an LTC. Provides a fair bit of risk protection, as well as flexibility for distribution.
Costs a couple hundred to set up yourself online, and might add a couple hundred more to your annual accounting bill. Adds a bit of complexity.

Is a company worth it? Impossible to say based on the information given. Speak to your accountant!

[artemis]

Recommend start by reading Matthew Gilligan's Tax Structures 101.

[Rosco]

There are so many parts to consider, here are a couple

1) What is the risk of you being sued for your work? This is generally the main reason to change to a limited liability entity.

2) Attribution rules - If you are basically an employee who turned into a contractor for the same firm, then you are likely to get caught by the attribution rules, and if using a company you would have to attribute all the income to you anyway.

3) Are you really a contractor? Or are you really an employee? Big difference is that contractor can claim expenses, an employee can't. The difference is who has control. A contractor is normally doing set projects and doing them whenever they want, however they want and whereever the want. A contractor can work for multiple firms. An employee is controlled by the employer and generally works certain hours, just for the one employer.

4) What are your other structures - can your business income fit smartly into these structures to give you both asset protection and tax minimisation? Also considering the rules changes coming up from Labour.

Ross

[Perry]

Also considering the rules changes coming up from Labour.

Any particular ones you have in mind?

[Rosco]

Ring fencing of property losses is the key one for a lot of investors!

[Perry]

Right. I wonder what the unintended consequences of that might be.

[BlueSky]

4) What are your other structures - can your business income fit smartly into these structures to give you both asset protection and tax minimisation? Also considering the rules changes coming up from Labour.

Ross

Other entity is LTC.
I wanted to keep it separate from LTC for 2 reasons
1. contract stint was short term initially and
2. not to overly complicate things.
From tax perspective using LTC entity would been ideal but meant it needed to be GST registered which LTC is not at present .

[Rosco]

Not really what I was meaning. Generally would never put your business in same entity as rentals.

Two LTC's, both owned by a Trust would be an example of a business structure.

Ross

[BlueSky]

Not really what I was meaning. Generally would never put your business in same entity as rentals.

Two LTC's, both owned by a Trust would be an example of a business structure.

Ross

There are no tax benefits if you are setup as a sole trader and you cannot be charged flat rate of 28% if sole person operator.

Existing LTC wont be any good as I need to offset against my income when I eventually go in debt