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  1. #1
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    Default Wdyt

    Dh had a meeting with his boss this morning. He was presented with 2 options:

    Option 1: take a 2.5% salary increase (works out about $30 extra a week)

    Or

    Option 2: every 6 months receive a 5% 'bonus' on any profit made (eg if the company makes 250,000 profit, dh would receive 12,500). This is not taxed (dont know how that works- will go over the paperwork tonight).

    Dh has been with this company for 3 months and they have already cleared a 250,000 profit since he started, and they have even more work coming in daily.

    He is leaning towards option 2. I see pros and cons for each, but am also leaning to Option 2. He feels it would act as extra incentive for him to continue bringing in work and help him stay motivated- the more work he brings in = more money in his pocket every 6 months.

    If you were faced with this choice, what would you choose. And why?

  2. #2
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    I would make sure the paperwork words it very clearly about the 5% bonus every 6 months. There is a huge difference between the 2 options so you wouldn't want to miss out on a pay rise over a technicality. If the company does make that much profit and it's all worded correctly than option 2 sounds very appealing.

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    Default Wdyt

    Honestly it's impossible to say without knowing the history of the company and its performance. They have a similar arrangement at DH's firm and it can be years without a profit even though the firm does well.

    And no tax payable? That just doesn't sound right. Tax is payable on bonuses as its income. Unless it is being categorised otherwise.
    Last edited by Sonja; 03-11-2015 at 09:43.

  4. #4
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    option 2 but I'd be reading the fine print VERY carefully.

    also questioning the "not taxed" bit. if he's a partner in a partnership structure or a beneficiary under a tryst then j can understand profits being distributed without any tax having been with held. in a normal company structure, the distribution of profits is done by way of a franked or in franked dividend. if it's franked, it means the company has paid tax on those profits and the divided has the relevant franking credits attached. if it's unfranked, then the company has not paid tax on those profits. could this be what they mean? does hubby hold shares in the company?

    if it's none of those things then I'm stumped as to how a bonus can be paid without tax and super being applicable. any such payments to an ordinary salaried employee must have tax withheld and super would apply to the gross payment.

    I'd be reviewing the paperwork pretty closely. can you post a pic with the wording of option 2? obviously blank out any private info.

  5. #5
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    Yeah the not taxed part didnt sound right to me either.

    Its a local engineering and geotechnical company run by a husband and wife. Has been around for years and in the last few years has grown considerably. Dh on his own also has a big reputation in the industry and as a result has brought a lot of major clients and scored several new client contracts worth big money. The boss doesn't know much about the area fh works in (boss is more the engineering side), and created this job specifically for dh knowing his reputation and the sort of work he can bring in. Dh feels for the first time in his career, he is finally being rewarded for his hard work and the boss (and wife) really do look after him and our family (which they do, they are lovely people). No hubby doesnt hold shares in company.

    Definitely interested to see it written on paper how it will work. Knowing dh he probably misheard about the tax part. Will be getting my mum to go over it with a fine tooth comb as well as she knows a lot about this stuff.

    Eta- when dh told me about it this morning, he didn't use the word bonus. He just said he would receive 5% of any profit made every 6 months.
    Last edited by SheWarrior; 03-11-2015 at 09:51.

  6. #6
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    That's still a bonus. It's just the way they calculate it.

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    Yes even bonuses get taxed unless it's cash under the table and should the tax department decide to try to find out why 10k+ goes missing every 6 months both parties could get in trouble. I recently looked into it myself. At the end of the financial year you could end up with a debt instead.

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    It won't be "tax free". If the company don't pay tax on it, you and hubby will have to come tax time. And if the $25k or so a year pushes hubby into a higher tax bracket, you could end up even worse off, cause you'd owe extra tax on every dollar he earns.

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    Default Wdyt

    Quote Originally Posted by trustno1 View Post
    And if the $25k or so a year pushes hubby into a higher tax bracket, you could end up even worse off, cause you'd owe extra tax on every dollar he earns.
    This is incorrect.

    The income tax system in Australia is staggered. Only the portion of income that falls in the higher bracket gets taxed at a higher rate, not all income.
    Last edited by babyno1onboard; 03-11-2015 at 10:58.

  10. The Following User Says Thank You to babyno1onboard For This Useful Post:

    amyd  (03-11-2015)

  11. #10
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    I'd go with option 2 but work out what the tax would be on that money and put it aside until after tax time in case tax is payable. I'm with the others that it doesn't sound right that it's tax free. I'm not an accountant though.


 

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