# Attention Uber Drivers using a Pty Ltd company...



## Hugh G (Sep 22, 2016)

*Small business is the collateral damage of Labor's franking policy
*

 *By Olivia Maragna*
May 10, 2019 - 11.48am
https://www.brisbanetimes.com.au/na...-labor-s-franking-policy-20190510-p51lxa.html

When it comes to the hip pocket in this federal budget, Labor has announced a long list of policies that may have a negative impact.

Those in the firing line include investors, superannuation members, self-managed super funds and self-funded retirees, but amongst those impacted, it seems small business has managed to avoid scrutiny.

With eight more days of the Federal election campaign, Labor will promise a bigger surplus than the Coalition.

Or are they the collateral damage that has been overlooked?

When it comes to Labor's proposal to abolish refundable franking credits, small businesses, operating through a company structure, join the list of those who may be negatively impacted.

So, let's start at the beginning. What are franking credits, and should they be refundable?

Here's a simple way to explain them.

​A business owner runs her business as a sole trader. She earns $20,000 in profit and pays tax on this. As the tax-free threshold is close to $20,000, she pays no tax on the income and banks $20,000 in her bank account.​​She decides to instead run her business through a company for a number of reasons. She earns the same $20,000 in profit and the company pays about 30 per cent tax on the profit, being $6000. She is left with $14,000 in cash and pays this as a dividend to herself. In her tax return, she needs to gross up her income back to the original profit of $20,000 ($14,000 in dividends plus a credit of $6,000).​​As the tax-free threshold is close to $20,000, again, she pays no tax on the income and banks $14,000 in cash dividends plus a refundable credit of $6000. She banks a total of $20,000. Under both scenarios, the amount banked is the same.​​Based on this approach, company tax should be regarded as a withholding tax, similar to how employers withhold tax on employees' wages.​​*However, under Labor's policy to abolished refundable credits, the business owner operating through the company structure will only receive the cash dividend of $14,000 and lose the refundable credit of $6000.*​​*Effectively she will pay 30 per cent tax, even though she earns under the tax-free threshold.*​​Now while we can appreciate that business owners won't always make a profit of $20,000, even at a $60,000 profit, the business owner operating through a company would end up with less cash, should Labor abolish refundable franking credits.​​Increase the profit to $200,000 and under Labor's proposed change, both the sole trader and the company-operated business owner are now in the same position when it comes to their overall tax and cash banked.​

So, does it make sense to give the more profitable business owner the franking credit benefit, but deny the same benefit to the struggling business owner?

There are more than 2 million small businesses in Australia but starting one and keeping it afloat is a challenge, with more than half failing within the first three years.

With small business susceptible to such challenges, changes to the franking credits for those operating through a company just doesn't seem rational.

While Labor promotes that this proposed policy change is supposed to be hitting the top end of town, it appears in these scenarios, it's the opposite.


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## RoboRider (Aug 26, 2018)

According to the ATO you are not supposed to pt your Uber Income through a Pty Ltd Company in any case.










Aside from that, I agree the franking proposal has some hidden stings. In the example you quote though the simple solution is for the business owner to pay herself a salary that leaves the company with 0 profit - as long as she meets the relevant tests to be considered to be carrying on a business she can then get the benefit of any deductions through teh company but still pay tax as an individual.


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## Hugh G (Sep 22, 2016)

RoboRider said:


> According to the ATO you are not supposed to pt your Uber Income through a Pty Ltd Company in any case.
> 
> View attachment 319362
> 
> ...


I think when a company pays a director/shareholder a dividend the amount is exempt from compulsory super and also GST.


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## acme (Dec 7, 2016)

The labour party has to get this $1.6 billion they intend to spend on foreign aid from somewhere.


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## RoboRider (Aug 26, 2018)

Hugh G said:


> I think when a company pays a director/shareholder a dividend the amount is exempt from compulsory super and also GST.


Yes super is only paid on ordinary earnings and they aren't subject to GST because they aren't a payment for a good or service although I'm not quite sure what that has to do with your original issue? Paying a dividend isn't the answer to the franking credits problem as dividends are not a tax deduction - they are a distribution of profit to shareholders. It has to be salary to be deductible against profit.


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## UberDriverAU (Nov 4, 2015)

Hugh G said:


> I think when a company pays a director/shareholder a dividend the amount is exempt from compulsory super and also GST.


Whilst true, the ATO's view is that the income earned through Uber driving is not a company's income, it is the driver's personal income. As such, there's no circumstance where paying dividends could be relevant to Uber driving.


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## Hugh G (Sep 22, 2016)

UberDriverAU said:


> Whilst true, the ATO's view is that the income earned through Uber driving is not a company's income, it is the driver's personal income. As such, there's no circumstance where paying dividends could be relevant to Uber driving.


Years ago in the taxi industry I was driving part-time and some of the old timer owner-drivers shared with me some of their tax minimisation tricks, apart from the copious use of cashies.

Once technology allowed drivers to logon with an ID , thus identifying that income for the shift to a particular ABN, many of the owner-drivers ensured their wives got a taxi licence. As there was no photo ID the drivers logged-on with their wive's ID so that the income could spread over to the wives lower tax bracket.

I'd imagine some some illustrious fulltime rideshare driver may have come up with a similar scheme where he rents his vehicle from his wife's pty ltd company, which may have other income from her activities, in an effort to gain some tax advantage.


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## RoboRider (Aug 26, 2018)

Hugh G said:


> Years ago in the taxi industry I was driving part-time and some of the old timer owner-drivers shared with me some of their tax minimisation tricks, apart from the copious use of cashies.
> 
> Once technology allowed drivers to logon with an ID , thus identifying that income for the shift to a particular ABN, many of the owner-drivers ensured their wives got a taxi licence. As there was no photo ID the drivers logged-on with their wive's ID so that the income could spread over to the wives lower tax bracket.
> 
> I'd imagine some some illustrious fulltime rideshare driver may have come up with a similar scheme where he rents his vehicle from his wife's pty ltd company, which may have other income from her activities, in an effort to gain some tax advantage.


Yep there are definitely drivers who lease their vehicle from their own (or partner's) pty ltd company and there is absolutely nothing wrong with it as long as the rate is set in line with normal market rates (which are pretty easy to determine). Really depends on your own financial situation as to what works best for you.


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## UberDriverAU (Nov 4, 2015)

As long as it's an arm's length arrangement the ATO won't have a problem with it. If not, they can deny/limit deductions as being primarily for tax avoidance. And tax fraud (ie. income alienation), well they're always going to have a problem with that.


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## aruber (Jul 9, 2019)

RoboRider said:


> According to the ATO you are not supposed to pt your Uber Income through a Pty Ltd Company in any case.
> 
> View attachment 319362
> 
> ...





RoboRider said:


> According to the ATO you are not supposed to pt your Uber Income through a Pty Ltd Company in any case.
> 
> View attachment 319362
> 
> ...





RoboRider said:


> According to the ATO you are not supposed to pt your Uber Income through a Pty Ltd Company in any case.
> 
> View attachment 319362
> 
> ...





RoboRider said:


> According to the ATO you are not supposed to pt your Uber Income through a Pty Ltd Company in any case.
> 
> View attachment 319362
> 
> ...


What's really interesting is this exact page no longer exists on the ATO website. They have revamped the section and the new relevant page has NO specific wording anymore i.e. this sentence no longer exists ... "not in another entity such as a company.... " ...


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