Guidance on paying yourself

Hi all,

Have tried searching but couldn't come up with anything

The scenario below is in relation to a sole director/shareholder with no other sources of income, seeking the most tax effective method to pay myself

Essentially what i am hoping to do is pay myself to cover my residential rental expenses and run everything else through the business

Is this along the lines of what i should be doing?

- Pay myself wages @ $1,517 a month where tax free threshold is met @ <$18,200 P/A, thus covering my rental expenses
- Any extra income i choose to derive should be in the form of franked dividends every quarter?

My questions are;
- Am i able to claim the tax-free threshold from my company?
- How would i exactly need to reflect payment to myself (tax withholding obligations/super contributions)?

Part 2:
While i have the reader here, i'm also a little confused on my GST obligations, ATO calls for 10% GST to be paid on providing goods/services if you turn over 75k annual revenue. Where i'm confused is as a finance broker, we generally don't invoice the customer and instead get paid by the lenders.

I'm wanting to stay on top of my tax from the start, so if we take the example of receiving $10,000 in gross commissions from one lender, would i need to set aside 10% in a GST account that is later payable on top of tax calculations on gross profit @ quarter end?

Thank you in advance

 

Can you clarify a few things:

• Do you have a company or are you a sole trader/partnership?
• Is your turnover expected to exceed $75K/annum?
• Have you spoken to your accountant & solicitor on setting up a company & registering for GST?
• Will you be better off being registered for GST from day 1 even if you don't exceed the threshold? How will you explain the increased costs/get the bank to pay GST once you exceed the threshold?
• Have you considered FBT on personal expenses that you want the company to pay?
• If you aren't registered for GST, then you can't collect or remit GST to the ATO

 

Pay yourself a salary. You will enjoy the tax free threshold. Do it through your business software program remebering single touch. There will be super obligations but that is sort of good. Don’t forget workers comp might apply. I assume just a sole operator so no payroll tax.

Make sure your cashflow forecast is strong and you know your break even.

 

@Scott No Mates, thanks for the quick reply!

• Do you have a company or are you a sole trader/partnership?

Company, Sole director/shareholder

• Is your turnover expected to exceed $75K/annum?

Yes

• Have you spoken to your accountant & solicitor on setting up a company & registering for GST?

Yes, company structure was the most attractive

• Have you considered FBT?

Not yet but good call, will have a read on this

I have a relatively simple structure so i'm hoping to learn on how to approach this myself rather then having a chat to an accountant, wouldn't be anything outside the box that hasn't been done a million times before i would assume

 

Thanks Ross, appreciate the quick response too.. was actually hoping to learn how to do it myself as opposed to using accounting software, so i can at least understand the fundamentals until the business grows - would be cool to know out of the example i mentioned above how it would actually look like from company receiving income, to me paying myself and having all the mandatory things included

P.S
I don't have any staff to need to have to adhere to STP, not expecting to hire until later on down the track

Hope that makes sense!

 

the aggregators will require the contracting party to be registered for GST so your company will need to register. Comms will include GST.

 

The company has staff though - you

 

The chat with the accountant should happen up front so you don't make the mistakes, they can guide you to all of the compliance requirements and to avoid any pitfalls or penalties.

 

There are a range of factors that may impact this proposal. If the company income is personal services income from services of your own personal exertion and no exemption applies then the proposal fails as all company profit is your personal income. There may also be loan servicing issues that could be affected if you did earn a low income. You may also fall foul of FBT rules and Div 7A if you "pay everything through the business". You also now must meet STP and/or PAYG withholding obligations or the salary wont be deductible. As a employee you alos must comply with a TFN declaratio that will address the tax free threshold and other issues Your use of the expression "Pay myself" is quite flawed. The company is not you. The company would pay you and must pay super and hold workers comp etc

GST is never 10% of turnover. You may or may not already be obliged to be registered and the threshold isnt passing $75K

Personal tax advice time to avoid loads of mistakes

 

Accounting software like xero will give you certainty and control over your business. You can choose to do your own bookkeeping but writing your own financial reporting platform is like trying to develop your own internet browser.

 

I guess to simmer this down, i'd like to understand the transaction from start to finish with my example of being paid $10,000 in commissions (dealing with one quarter)

Is it fair to say the below
- $10,000 Comission received in Company name
Q: Do i withhold 10% to reflect GST payable in a separate GST account?
Q: Do i need to put anything else aside for this one transaction?

- $1,517 has been paid as salary to me each month in the quarter
Q:Is this the gross amount?
Q:How much $ have i withheld? What does this account for? Does this money go in my separate company GST account or payable to the ATO at the end of the quarter?

Come end quarter, assuming only $10k in for the quarter, i would pay the GST owing then pay 27.5% on the gross profit which would then mean i am up to date with my tax obligations?

Edit:
Should have chosen a figure where >75k, let let total revenue = GST payable for above

 

GST will depend on whether you are registered. What does the recipient created tax invoice from the aggregator show ? It may actually explain and show the GST involved on the income AND the GST paid on the aggregator costs. GST is often 9.09% of turnover (1/11th !)...less the GST paid.

I would seek tax advice and a range of matters impact any business. A tax adviser is there to - advise, rather than repair a mess afterwards. Thats far more expensive.

 

Yep i am currently registered

I haven't received one yet, i'm expecting one to come in soon so i was wanting to be prepared on how to treat it, what i should put aside, where i should put it etc...

Surely must be a YouTube video or something explaining it, i'm all for accounting software - i just would like to understand it first

 

Why have you chosen company with single shareholder? Are there other classes of shares? Do you have a spouse etc?

 

The risk is that you dont know when youve done something wrong.

 

Company structure was chosen mainly for tax benefits and minimizing my exposure to liability risk, no spouse, ord shares issued, nothing else, only myself aswell

How wrong can you be though, from the above replys it looks like there is works comp and super to consider - which would have set minimum values that you would need to pay

If i'm not mistaken it is just a matter of finding what amount to pay myself as salary that includes the above, which will put me below the tax free threshold and also wanting to know how this actually looks from a company paying me perspective (i.e if it was done manually not via accounting software)

Then part two was understanding how to be on top of GST/tax from my company generating its income

 

You have two separate entities, you and the company. Even if you pay zero tax, the company makes and distributes the profit to the shareholders after paying approx 30% tax. It also pays FBT on the personal expenses. Where's the advantage?

 

Just pay yourself a wage. company can withhold tax and pay super.

but consider restructuring the shareholdings as if you had a trustee of a discretionary trust own the shares there are future tax and asset protection benefits. You would not want the trading company to retain earnings, and bringing them out to you would result in tax being payable.

 

And the exposure of company assets to company liabilities and risks?

 

The OP question is a vary classical one for what can later become a division 7A issue if the company lends $$$ to an associate who reports negligible income but pulls the $$ out of the company. Perfect asset protection. Company has no assets