If your business is relatively new, then you’re probably doing as much as possible yourself to keep your costs down. And your spouse may well be helping by looking after the bookkeeping, payroll and general office administration.
But have you considered adding them to your payroll and paying them a regular salary?
Maybe you don’t think you can because you’re a sole trader. But the truth is your business’ structure doesn’t matter. Sole traders, partnerships, companies and even trusts can pay spouses a regular wage for services such as bookkeeping and administration.
What does matter is whether your business satisfies the Australian Taxation Office’s personal services business rules, which affect medical specialists, general practitioners and health workers. Chances are your business will satisfy at least one of the ATO’s personal services business rules, but you should talk to your accountant to make sure.
The benefits of paying your spouse a salary
By paying your spouse a regular wage you can claim it as a tax deduction for your business, making it a great way to split your income. It will also help you maximise your superannuation deductions. Paying your spouse’s superannuation not only gives you a tax deduction, but also helps them grow their retirement nest egg.
And don’t forget that you can contribute any amount, from the current superannuation guarantee rate right up to the concessional contributions limit for the current financial year. And the more you pay, the more you can claim, and the bigger your tax savings will be.
You can even provide your spouse with a motor vehicle. Yes, you’ll have to deal with the complexities of fringe benefits, but it could give you an income tax and GST benefit.
Make sure you pay your spouse properly
Like anyone else on your payroll, you need to pay them a reasonable amount for the work they’re doing. So how much is “a reasonable amount”? Well, here’s a simple answer: What would you pay someone else to do the same type of work?
Paid services they can provide for your business
So what services can your business pay your spouse to provide? As we mentioned earlier, the two main types of work this arrangement covers are:
- processing data in electronic bookkeeping systems such as Xero
- processing the staff payroll
- business administration
- scanning and filing documents
- arranging seminars
- organising appointments
- ensuring insurance policies are kept up to date
- collecting the mail
- paying invoices on your behalf
- dealing with debtors
- answering phones
- typing letters
- making appointments.
Paying your spouse a salary: it’s good for them and good for your business
It’s great that your spouse is willing to help you run the business and keep your costs down. And paying them a regular wage is certainly a nice way to show your appreciation. But it can also help your business’ bottom line significantly. By paying their wages, maximising your superannuation deductions and providing them with a motor vehicle, you can potentially save around $25,000 in income tax each year.
And that’s something you can both feel good about.
Is your spouse helping you run your business? Are you unsure whether paying them a salary is a good idea (or even possible)? Then get in touch with us so we can help you make the right decision.