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Re: Tax agreement for receiving salary directly from a client

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Initiate

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Replies 6

Hi there,

 

I'm currently negotiating an agreement with my company to receive a variable salary rather than a fixed one. The salary will be the total proceeds from one of the company's US-based long-running clients. The proceeds will be forwarded directly from the client's to my account each month. This agreement also ensures I receive a minimum salary each month if the proceeds are lower than expected, paid by the company.

 

My questions:

1. Is a variable salary possible or should any amount except the minimum salary be considered bonus/commission?

2. Since the payment will be deposited under the name of my client and not my company, will this be a problem when establishing my employee status with my company later on? I believe salary deposits with the employer's name is also a requirement.

3. Is the agreement with my employer enough or do I need to create a similar agreement with the client stating the client will be forwarding payments to me on behalf of my company? And, does it mitigate the issue in Question 1?

 

Highly appreciate if you could help me with the questions.

 

Thanks.

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Best answer

Community Manager

Replies 2

Hi @parev 

 

Thanks for your patience, your question raises lots of interesting issues.

 

Thanks @TaxedoMask for highlighting factual issues that can make a difference when looking at these issues.

 

Assuming you're employed by the company and you're negotiating in that capacity as an employee, any amount you receive from your employer in return for providing your services will be part of your assessable income. It might be calculated by reference to the amount the company receives from one of it's clients but it still represents remuneration for you. It normally doesn't make any difference whether your employer pays you directly for your services or indirectly such as in the way you describe in your question.

 

Now let's look at your specific questions:

1. It really doesn't matter whether you receive a salary, bonus or commission it's all considered to be remuneration for providing services to the company and your marginal tax rate will apply to that income. How the amount is paid to you is a matter for you and the company to decide. You may find that a variable salary means that you pay different amounts of tax for each payment period. This will all wash out at the end of the year when you lodge your tax return and we look at the total amount of tax that you paid over the whole year.

2. It sounds like you're employed by the company and the company has arranged for you to be paid through the client depositing amounts to your account. If that is right there are no issues with your employee status with the company.

3. It's likely that there will be an agreement between the client and the company and that may well include an agreement for the client to pay you on behalf of the company. We would expect that the company would be responsible for wittholding any tax on your behalf.

 

 

6 REPLIES 6
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Devotee

Replies 2

 

1. Is a variable salary possible or should any amount except the minimum salary be considered bonus/commission?

What is the current arrangement? Why are you changing it? Is you current work treated as PSI?

You can have a variable salary or minimum with bonus - it would not change the nature of the arrangement. Generally it doesn't matter how you structure your pay (though they have their own tax consequences). You can choose to work on commission only or minimum plus commission/bonus.

 

2. Since the payment will be deposited under the name of my client and not my company, will this be a problem when establishing my employee status with my company later on? I believe salary deposits with the employer's name is also a requirement.

Sounds like the "client" is employing you directly. Why do you need to establish employee status with your company? If you are being employed by your client directly then interposing a company would (typically) only increase the compliance burden.

 

3. Is the agreement with my employer enough or do I need to create a similar agreement with the client stating the client will be forwarding payments to me on behalf of my company? And, does it mitigate the issue in Question 1?

The agreement with your "employer" is between you and the employer. Sounds like it has nothing to do with your company. You cannot attribute income directed and paid to you to a company using an "agreement".

 

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Initiate

Replies 1

Hey @TaxedoMask,
No, the client isn't directly employing me. My company, which I referred to as my employer as well, employs me as a Software Engineer for their product that they sell to advertising company. So, in my case, now the company will invoice them on their name and forward account number for payment. This income will still be recorded as company income but it will be paid to me directly and be my salary.

Now, as I mentioned, since the payment to my account now will be under the client's name, will it give me any issues later when I show my employment history with my company as it might require me to present my bank statement showing my salary payment?

Thank you for the help.
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Community Manager

Replies 0

Hi @parev ,

 

Interesting question. We will do some research and get back to you.

 

KylieS

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Best answer

Community Manager

Replies 2

Hi @parev 

 

Thanks for your patience, your question raises lots of interesting issues.

 

Thanks @TaxedoMask for highlighting factual issues that can make a difference when looking at these issues.

 

Assuming you're employed by the company and you're negotiating in that capacity as an employee, any amount you receive from your employer in return for providing your services will be part of your assessable income. It might be calculated by reference to the amount the company receives from one of it's clients but it still represents remuneration for you. It normally doesn't make any difference whether your employer pays you directly for your services or indirectly such as in the way you describe in your question.

 

Now let's look at your specific questions:

1. It really doesn't matter whether you receive a salary, bonus or commission it's all considered to be remuneration for providing services to the company and your marginal tax rate will apply to that income. How the amount is paid to you is a matter for you and the company to decide. You may find that a variable salary means that you pay different amounts of tax for each payment period. This will all wash out at the end of the year when you lodge your tax return and we look at the total amount of tax that you paid over the whole year.

2. It sounds like you're employed by the company and the company has arranged for you to be paid through the client depositing amounts to your account. If that is right there are no issues with your employee status with the company.

3. It's likely that there will be an agreement between the client and the company and that may well include an agreement for the client to pay you on behalf of the company. We would expect that the company would be responsible for wittholding any tax on your behalf.

 

 

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Initiate

Replies 1

Hey ,

Thanks for the reply. Yes, I am negotiating as the employee of the company and your clarification completely makes sense now. I'll move forward with your suggestion.

I just had one more question, one of my credit providers require me to show my income statement, so do I send a combination of my statement, contract and company agreement with the client to the provider?

Thanks once again.
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Community Manager

Replies 0

Hi @parev,

 

I would contact your credit provider and ask them what they require. I am sure they will have there own standard requirements.

 

KylieS