PAYG vs ABN - why consider the switch?

Contractors who choose to operate in the ABN system rather than as PAYG employees of recruitment agencies or management firms enjoy many of the following benefits:

  1. Full access to cash flow. PAYG contractors only have access to less than 50% of their gross earnings as cash flow, as the balance is withheld to pay income tax, Medicare levy and statutory superannuation contributions. ABN holders, on the other hand, have access to 100% of their gross cash flow for the full financial year and for many months following, during which time they invest their withholdings in interest bearing accounts to generate additional income before remitting to the ATO and making self-determined contributions to superannuation.
  2. Greater range of tax deductions. Operating as a business, many contractors have access to a broader range of business-related tax deductions than those in the PAYG system, although the nature of deductions vary from situation to situation.
  3. Wealthy people tend not to be employees - most are business owners or derive their income from investments. The business approach is a core component of the fast track to wealth.

Traction adds further value to contractors working through the ABN system:

  1. We support you to manage your personal situation as a business, applying tried and tested business management principles in planning and execution to help you achieve a superior result.
  2. We take care of the increased administrative workload by providing your own Accounts department function - you still only have to submit timesheets as normal, and everything else happens in the background
  3. You have access to specialist wealth advisors that specialise in high net worth individuals and who create the most tax effective and risk managed structure to suit your situation and objectives.
  4. We take a proactive approach to career development and management, ensuring that you are best placed to attract the highest possible contract rates. Most contractors are reactive in their career progression, only looking for new assignments when the current one finishes.

In short, the switch to the ABN system is becoming the preference of many independent contractors. Based on our research, in the Information Technology industry alone, more than 40% of contractors operate through the ABN system, and this number is steadily growing.

Contact Team Traction for more information on 1300 786 323 or email info@gettraction.com.au.

Disclaimer – Traction does not provide taxation advice to its clients. You should consult a qualified tax professional for specific advice relating to your personal situation.