ASSOCIATE
What is the difference between employees and contractors. My employer wants me to have an ABN!
The simplistic way to explain the difference between an employee and a contractor is
- An employee works in your business and is part of your business.
- A contractor is running their own business.
The main impact for changing from an employee to contractor is
- You will no longer be covered by employer’s workcover.
- You will no longer receive annual leave, sick leave and you will need to check if Super Guarantee applies.
What are Pros and cons of negative gearing?
As with any tax strategy, there are some positive and negative considerations.
Pros
- Potential tax savings
Negative gearing is a tax strategy for reducing overall tax by offsetting an investment loss against other income. There is also potential to carry forward any unused loss to future years.
- Capital gain
Besides tax savings, an investor may have a better choice of properties when the rental income is considered as investor’s income. Hence, the possibility to buy better properties, in better locations may increase the potential to receive a higher profit upon disposal of the investment.
Cons
- Cash flow
Necessity to regularly dip into your own funds when the rent and expenses do not cover the mortgage repayments. Not to mention if your tenants move out or interest rates increase.
- Capital growth risks
There can be a risk that the investment property growth has slowed even to the extent that on disposal of the investment property is worth less than the original purchase price.
- Capital gain
Any profit made on the disposal of the property less cost of holding the asset, including purchase price, will be subject to Capital Gains Tax and CGT discount. In essence the net tax payable will be calculated at the investor’s margin tax rate.