When considering whether to add a private company to the main optimisation step, the engine will consider whether a company makes sense from the perspective of:
1:) Asset protection
2: Tax savings
Asset protection
The engine will automatically establish a company for asset protection if both of the following conditions are met:
1: The client is a sole trader or self employed and there is current no company already established.
2: The client has indicated that protecting assets against creditors is a key objective.
Tax savings
Establishing a company for tax saving purposes will not be considered unless the client is able to satisfy the personal services income rules. A range of additional questions will be asked of the client to assess what income would likely be deemed as personal services.
The following steps will be followed to determine personal services income status:
Step 1: Is more than 50% of income received from any contract for labour, skills or expertise?
If the answer is No, then the company will be set as an option for the optimisation engine to consider.
If the answer is “Yes”, then the next step must be considered:
Step 2: Does the client satisfy the Personal Services Income results test?
To determine whether the client passes the results test we consider:
1: Was the client paid to produce a specific result;
2: Was the client required to provide the equipment or tools; and
3: Was the client required to have mistakes fixed at their own expense.
4: Does over 75% of income meet the above 3 conditions.
This test will be considered satisfied if the client answers “Yes” to all 4 options in the Fact Find.
If the answer is “Yes”, then the company will be set as an option for the optimisation engine to consider.
If the answer is “No”, then the next step must be considered:
Step 3: Does >= 80% of income come from 1 particular client?
Under the Fact Find, Sole Trader section we will ask the client to specify if at least 80% of income is derived from 1 client. This question can be found here:
If the answer is “Yes” then it is assumed that income is personal services income. If the answer is “No” then the following step will be applied:
Step 4: Perform remaining test
For income not to be classified as Personal Services Income, the client must satisfy 1 of the remaining 3 tests.
a: Unrelated clients test
The unrelated client test will be assumed to be satisfied if both to the following fields are selected:
b: Employment test
The employment test will be assumed to be satisfied if either of the following fields are selected:
c: Business premises test
The business premises test will be assumed to be satisfied if all of the following fields are selected:
If the answer is “Yes” to any of the 3 tests above, then the company will be set as an option of the optimisation engine to consider. If all 3 tests are failed, a company will not be considered for tax purposes.
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