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Second Income - one off lump sum payment

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Hi All, 

 

I am a bit lost on how tax will work on a second income with, that income coming very speratically. So I am hoping the community can help me.

I have a full time job, which I claim the tax free threshold on. Lets say that income per year is 120,000

I have an opportunity to do some very short term contracting, could a be a couple of times a year, but for this example lets just say once. Said short term contact will pay 15,000 before super and tax. 

A business wants me to use them to invoice the client that is going to pay the $15,000, they gave me 3 options to get paid:

1. Come on as an employer, I guess it would be casual, as it isn't full time. 

2 create my own ABN and use that to invoice the business, I guess that would make me a sub contractor to the business?

3 business hold 47% tax, which will go to the ATO and I would recieve the rest. 

 

I am really quite confused as to which was to go, as I would like the best financial outcome for myself, but I also want to make sure it is handle properly as the ATO see's it. 


Cheers, 

 

Stu.

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ATO Certified

Devotee

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Hi @stcomo

Welcome to the ATO online community

The first thing I would like to cover is when you receive a 2nd income.

If you're an Australian resident for tax purposes, the first $18,200 of your yearly income isn't taxed. This is called the tax-free threshold. You can claim the tax-free threshold to reduce the amount of tax that is withheld from your pay during the year.

The $18,200 tax-free threshold is equivalent to:

  • $350 a week
  • $700 a fortnight
  • $1,517 a month.

If you have more than one payer at the same time, we generally require that you only claim the tax-free threshold from the payer who usually pays the highest salary or wage.

Your second payer is required to withhold tax at the higher, 'no tax-free threshold' rate. The same applies to any additional payers. This reduces the likelihood of you having a tax debt at the end of the financial year.

Please see, https://www.ato.gov.au/individuals/working/working-as-an-employee/claiming-the-tax-free-threshold/

 

The next thing is the contractor versus employee, an employee works in a business and is part of the business  . A contractor is running their own business. You need to to determine the difference between the 2 , please see,  https://www.ato.gov.au/Business/Employee-or-contractor/Difference-between-employees-and-contractors/ There is a chart on this page that is very helpful.

 

I suggest you also complete the Employee or contractor decision tool Simply answer questions about the working arrangement and you'll generate a report that you can keep for your records. If you answer each question accurately and honestly, you can rely on the results.

The other thing you can do is also check your entitlement for an ABN,  As not everyone is entitled to an ABN you will be asked a series of questions when applying for one to determine your entitlement.

 

The last thing is the Tax rates,

Taxable incomeTax on this income

0 – $18,200

Nil

$18,201 – $37,000

19c for each $1 over $18,200

$37,001 – $87,000

$3,572 plus 32.5c for each $1 over $37,000

$87,001 – $180,000

$19,822 plus 37c for each $1 over $87,000

$180,001 and over

$54,232 plus 45c for each $1 over $180,000

The above rates do not include the Medicare levy of 2%.

 

If you decide that you would be a contractor then you would need to withhold tax from the income earned as you need to think about your total taxable income at the end of the financial year - Please see https://www.ato.gov.au/Rates/Tax-tables/, You could  put the tax away so that when you lodge and receive a debt that you have the money to pay the debt, you can make voluntary payments to your income tax account or you can voluntary enter in to the Pay as you go istalment system, please see https://www.ato.gov.au/General/PAYG-instalments/How-to-start-paying-instalments/

 

I understand that its a lot to take it but research is the key, the first step would be the Employee or contractor tool!

Hopefully this information helps


Regards, Tracey

 

 

 

Please note this is my personal view; I’m an ATO employee who chooses to help out here in my own time
1 REPLY 1

Best answer

ATO Certified

Devotee

Replies 0

Hi @stcomo

Welcome to the ATO online community

The first thing I would like to cover is when you receive a 2nd income.

If you're an Australian resident for tax purposes, the first $18,200 of your yearly income isn't taxed. This is called the tax-free threshold. You can claim the tax-free threshold to reduce the amount of tax that is withheld from your pay during the year.

The $18,200 tax-free threshold is equivalent to:

  • $350 a week
  • $700 a fortnight
  • $1,517 a month.

If you have more than one payer at the same time, we generally require that you only claim the tax-free threshold from the payer who usually pays the highest salary or wage.

Your second payer is required to withhold tax at the higher, 'no tax-free threshold' rate. The same applies to any additional payers. This reduces the likelihood of you having a tax debt at the end of the financial year.

Please see, https://www.ato.gov.au/individuals/working/working-as-an-employee/claiming-the-tax-free-threshold/

 

The next thing is the contractor versus employee, an employee works in a business and is part of the business  . A contractor is running their own business. You need to to determine the difference between the 2 , please see,  https://www.ato.gov.au/Business/Employee-or-contractor/Difference-between-employees-and-contractors/ There is a chart on this page that is very helpful.

 

I suggest you also complete the Employee or contractor decision tool Simply answer questions about the working arrangement and you'll generate a report that you can keep for your records. If you answer each question accurately and honestly, you can rely on the results.

The other thing you can do is also check your entitlement for an ABN,  As not everyone is entitled to an ABN you will be asked a series of questions when applying for one to determine your entitlement.

 

The last thing is the Tax rates,

Taxable incomeTax on this income

0 – $18,200

Nil

$18,201 – $37,000

19c for each $1 over $18,200

$37,001 – $87,000

$3,572 plus 32.5c for each $1 over $37,000

$87,001 – $180,000

$19,822 plus 37c for each $1 over $87,000

$180,001 and over

$54,232 plus 45c for each $1 over $180,000

The above rates do not include the Medicare levy of 2%.

 

If you decide that you would be a contractor then you would need to withhold tax from the income earned as you need to think about your total taxable income at the end of the financial year - Please see https://www.ato.gov.au/Rates/Tax-tables/, You could  put the tax away so that when you lodge and receive a debt that you have the money to pay the debt, you can make voluntary payments to your income tax account or you can voluntary enter in to the Pay as you go istalment system, please see https://www.ato.gov.au/General/PAYG-instalments/How-to-start-paying-instalments/

 

I understand that its a lot to take it but research is the key, the first step would be the Employee or contractor tool!

Hopefully this information helps


Regards, Tracey

 

 

 

Please note this is my personal view; I’m an ATO employee who chooses to help out here in my own time
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