The Importance of protecting your assets and your family

Contributed by Ken Hows, Principal | Howes Accounting Services |

I recently had a new client contact me seeking advice on the protection of his family assets. With my client’s permission, I tell his story…

He has a reasonably new business having traded for only three years but had been employing up to 45 tradesmen on several different construction sites.

His company had accumulated super profits after tax of over $400,000 and enjoyed a respected status within the industry for on-time professional work.

Turnover was over $1M a month. Trade Debtors $1.4M, Supplier creditors $600,000 and other creditors, Super, GST, PAYGW were another $180,000.

Plant and Vehicles costing $200,000 were written down to $160,000 with $105,000 owing on finance contracts.

A family man, he and his wife had just acquired a family home and was doing the Australian thing of raising his young family.

The head contractor defaulted on a payment totalling $1.3M and the initial report is to expect a liquidator’s dividend of nothing.

His immediate questions were:

What do I do?

The advice was he couldn’t continue to trade in the existing company as that company was now insolvent.

What are his personal liabilities and other exposure as part of a domino effect on the head contractor’s default?   

As his company’s sole director, is he liable for any unpaid employee superannuation and unpaid taxation liabilities?

He is responsible for any personal guarantees he has given his company’s creditors.

Any plant or vehicles that are subject to finance, risk a ‘fire sale’ and again he has personally guaranteed the contracts.

Any company bank overdraft is personally guaranteed, and the same bank holds a mortgage over the family home.

The lease on commercial premises may contain a personal guarantee.

Unpaid unrelated staff benefits can be covered by a Government grant established to assist employees who are left without employment.

No debtor insurance was in place.

Who owns the plant and materials on the abandoned building site?

Could the plant have been owned by another entity?

What can be done now and what could have been done to lessen the client’s family exposure?

Could the family home not be owned by a director?

Could the company bankers be a different bank to the family home mortgage creditor?

Could a super fund have owned the commercial premises?

Is a company the correct vehicle to trade in?

Can anything be recovered from the ‘no longer’ trading company?

Can the director continue to trade if he is declared bankrupt and can he still hold his necessary licences?

How can he continue to support his family and pay his home mortgage?

How does he travel to work?  How do his wife and children travel?

But more importantly, how would you cope given the same circumstances.

What can you do to protect yourself and your family?

Action Plan

• Review your present business structure and consider the need for a change and the cost of any change.

• It is not unreasonable to start a new company for each major project.

• Reduce your spouse /child’s liability by excluding them from being a director.

• Do not give personal guarantees unless necessary.

• Take out Debtor Protection Insurance before starting a job and add the cost to the contract.

• Speak to your solicitor to ensure your contract and invoices have retention of ownership until paid clause.     

• Consider the transfer of tangible assets to a separately owned structure.

• Hold family assets away from yourself.  Consider a spouse or superannuation fund ownership.

• Ensure you know your profitability and cash flow position so you can budget the payment of your creditors and taxation commitments.

• Monitor your personal living expenses.

• Speak to your solicitor to ensure you and your spouse have appropriate wills and the enduring power of attorney documents.

• Consider the creation of a testamentary trust under your will.

Talk to a professional advisor to ensure you are protected.

For more information, contact Ken Howes on

What is the difference between an employee and a contractor, and does it matter? The Australian Tax Office describes an employee as someone who works in your business and is part of your business. A contractor is running their own business. But it’s not as simple as it sounds.

Your tax, super and other obligations will vary depending on whether your workers are employees or contractors and it’s against the law to wrongly treat an employee as a contractor. It’s worth checking because if you don’t get it right, you could be facing heavy penalties.

Some workers are always considered employees, such as apprentices, trainees, labourers and trade assistants. Employees must be people. If you’ve hired a company, trust or partnership to undertake work, that is a contract relationship for tax and super purposes. If you have sourced workers through a labour hire company, and you pay the company for the work, they are responsible for those obligations. If you’ve hired an individual, it’s the details of the working agreement which will determine if they are a contractor or an employee.

There are a few factors when taken together, that determine whether a worker is an employee or contractor for tax and super purposes.

Do they have the ability to subcontract or delegate work? An employee cannot pay someone else to do their work, whereas a contractor has this right.

How are they paid? If the worker is paid for their time worked, or a commission, or a price per item, they are considered an employee. If they are paid to achieve a result based on a quote they provided, they are a contractor.

Who supplies their tools and equipment? If you supply all or most of a worker’s tools, or they supply their own, but you pay a reimbursement, they are an employee. A contractor would supply all their own equipment, and you do not pay them a reimbursement or allowance.

Are you in control of the workplace? Employees are directed by you to work as directed, but contractors have the freedom to determine how any work is done subject to their contract.

Myths about employees vs contractors

Myth: If a worker has an ABN they’re a contractor. FALSE: Having an ABN makes no difference to whether a worker is an employee or contractor for a job. If the working arrangement is employment, an ABN will not make the worker a contractor.

Myth: Employees can’t be used for short jobs or to get extra work done during busy periods. FALSE: The length of a job or regularity of work does not influence whether a worker is an employee or contractor. Both can be used for casual, temporary, on-call and infrequent work busy periods, short jobs, specific tasks and projects.

Myth: My business has always used contractors, so we don’t need to check whether new workers are employees or contractors. FALSE: Unless a working arrangement (including the specific terms and conditions under which the work is done) is identical to a previous arrangement, the outcome could be different.

Myth: If a worker has a registered business name, they’re a contractor. FALSE: Having a registered business name makes no difference to whether a worker is an employee or contractor.

Myth: My business should only take on contractors, so we don’t have to worry about super. FALSE: Businesses may be required to pay super for their contractors. If you pay an individual contractor under a contract that is wholly or principally for the person’s labour, you have to pay super contributions for them.

Myth: If a worker submits an invoice for their work, they’re a contractor. FALSE: To know whether a worker is an employee or contractor, you need to look at the whole working arrangement and examine the specific terms and conditions.

To determine if your workers are employees or contractors, you need to review your whole working arrangements.  The ATO has an online tool to help with this process.

The Decision Tool will help you work out if your worker is an employee or contractor for tax and super purposes.

What will I do next?

Once you determine if your workers are employees, you must:

  • withhold tax (PAYG withholding) from their wages and report and pay the withheld amounts to the ATO
  • pay super, at least quarterly, for eligible employees
  • report and pay fringe benefits tax (FBT) if you provide your employee with fringe benefits.

If your workers are contractors instead:

  • you won’t have to withhold from payments to them, although this is not the case if they don’t quote their ABN to you, or you have a voluntary agreement with them to withhold tax from their payments
  • you may still have to pay super for individual contractors if the contract is principally for their labour
  • you don’t have FBT obligations.

It should be noted that under work health and safety laws, businesses have different obligations when it comes to the definition of a worker. A worker is a person who carries out work in any capacity for a business or employer or ‘person conducting a business undertaking’ (PCBU) They can be an employee, a trainee, apprentice or work experience student, a volunteer, an outworker, a contractor or sub-contractor, an employee of a contractor or sub-contractor, an employee of a labour hire company.

While at work, all workers must take reasonable care for their own health and safety, as well as others and must comply with any reasonable instructions, policies and procedure given by their employer, business or controller of the workplace. This includes contractors, regardless of any other contractual agreements with a business.

For more information, visit the ATO at and the work health and safety regulator in your state or territory.

Code covered contractors are reminded that from 1 September 2018, the ABCC will treat any failure to report disputed or delayed payments as a breach of the Code.

Disputed and delayed payments to subcontractors must be reported to the ABCC as soon as practicable after the date that payment is due. Further detail on reporting obligations and a security of payment reporting form are available on the ABCC website.

This reporting obligation was announced in July at the commencement of the ABCC’s security of payment campaign aimed at creating awareness of payment obligations and rights under the Code for the Tendering and Performance of Building Work 2016.

The campaign also asks code covered contractors to:

  • make payments in a timely manner
  • resolve disputes reasonably and cooperatively
  • document and follow their dispute settlement process
  • not coerce or pressure subcontractors regarding payment
  • comply with any adjudication determinations.

For further information and to report any disputes or delays visit