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  • #983232
    Addvantage
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    I am not very clever at tax. i operate a company

    sales = 100
    expenses =30
    profit = 70

    i buy assets with the 70 in bank.
    EOFY do i have to pay tax at (70 less capital allowances assume 10) x 30%???

    Where do I get the cash flow from?? I used it all up to buy assets?

    Please help

    #1141250
    Dissimulo
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    I think you may need to go read up on basic accounting terms to help clear things up.

    Cash flow generally comes from either;
    – Sales/revenue
    – Borrowings/loans
    – Or capital injections (injecting your own money into the business/company).

    Profit does not necessarily = cash.
    You can have a profit of $70k for the year, yet have $0 in the bank.
    Conversely, you could have made a loss for the year, yet still have $500k in the bank.

    The obvious answer would have been to hold off on buying the assets, or spend less on the assets until which time your business have sufficient cash to meet any shortfalls.

    #1141251
    Healthy Personal Finances
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    Companies pay tax on the profit for the year. So if your profit is $70 then tax at the company rate of 30% would be $21….so in very basic terms you would have cash left of $49.
    Any assets bought are not a further deduction outright to the business (depending on the cost) however you can then claim depreciation on the assets over their useful life.
    Never assume what is in the bank is your cash to spend, otherwise you won’t have any money left to run the business or pay the tax man.
    A good budget or yearly plan of income and expenses will help sort this out.
    Hope this helps
    Stacey

    #1141252
    PRO
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    Don’t buy assets in the trading company. Separation is key, otherwise if something goes wrong you lose the lot.

    Good example.

    A client of mine built up a successful business, bought the building it operates in through the company using a bank pre GFC. Bank valued the building this year, came in less than allowed under the covenants. Gave the client 7 days to come up with other $6m to pay out the loan. Never missed a payment.

    Bank sent in administrators and client has now had to borrow money elsewhere to buy back the business he established. Had he bought it in a separate entity it would not have been a probably.

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