Self Owned Business and Personal Income

[JamesJJ]

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Hi there

I run a fairly new business, and this is the first year I am receiving an income from it.

I’m wondering if the income that I receive from the business can be offset by the initial investment I paid into it? And if so, what tax category that would fall under?

Thanks so much

[Divert To Mobile]

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Hi James,

It is best not to try and do your return on your own, but an excellent policy to go to your accountant armed with questions and paperwork to backup your claims.
The short answer to your question is yes, business start up expenses do offset against gross income.
I don’t understand what you mean by
“what tax category that would fall under?”

Steve

[AGMBris]

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Hi

In my experience, and bear in mind tax legislation changes weekly if not daily, but it really does depend on what the nature of those payments for “initial investment” are. If they are of a capital nature rather then “for the purpose of generating income”, then there will be different compliance rules from the tax commissioner’s point of view.

I agree with the previous post, it is definitely worth a consult with a tax agent/accountant and although costs a bit more, will stand you in good stead for future expansion.

IMO, doing this right from the start and patiently (or when growth allows) is a key to financial success even when the bad things hit.

Good luck

[JamesJJ]

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Hi

Thanks for the responses.

In terms of ‘tax category’ I was wondering if it would be regarded as a dividend, or entrepreneur investment or something entirely different.

Might be a little complicated to do the tax on my own

Thanks

[Marc D]

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Hi,
Without knowing the business structure, no one can give you any decent information. Perhaps you could provide more details…..

Marc

[JamesJJ]

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Hi Marc

Thanks for your reply.

Three of us went partners and invested some cash to start a business three years ago. It’s a pty ltd company, the three of us are equal shareholders and work there fulltime. We’ve only started drawing wages this financial year, and have been taking an equal amount each week.

The wages are paid like regular employment – with PAYG’s and superannuation etc with tax withheld based on the weekly pay rates.

All the other profits from the business are reinvested.

Any advice would be appreciated, thanks!

[JamesJJ]

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Sorry just to add to my last post.

We each invested the same amount of cash to start up the business, and my query is whether that initial cash investment can be offset against the wages we have drawn from the company.

I.E. say we have invested $20k, will the first $20k we draw in wages be tax-free?

Thanks

[Past-Member]

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It’s not as simple as that – please get an accountant that you can discuss things with – all through the year, not just at tax time. There are good ones out there.

.

[Vish – V M Bus Consultant]

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JamesJJ, post: 126485 wrote:

Hi Marc

Thanks for your reply.

Three of us went partners and invested some cash to start a business three years ago. It’s a pty ltd company, the three of us are equal shareholders and work there fulltime. We’ve only started drawing wages this financial year, and have been taking an equal amount each week.

The wages are paid like regular employment – with PAYG’s and superannuation etc with tax withheld based on the weekly pay rates.

All the other profits from the business are reinvested.

Any advice would be appreciated, thanks!

Hi James…
With Company set up, you have to be very careful in relation to funds that are being paid out to Directors. There are Tax Laws which strictly govern the same.

If you pay salary to directors like any other employee, then that would not change your initial capital which all three of you have invested. But if any director/s takes excess funds out from the Business then the directors have an option to either reduce capital balance of the concerned director or they have to pay PAYG & Superannuation on that amount and have to add that amount as salary.

At any point of time if the Balance of the Director Capital Account becomes Debit ( overdrawn ) , then Div 7 A will apply.

Hope that helps

[Divert To Mobile]

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You need to disregard my earlier post – it was based on the information on hand at the time.

The situation you are now describing is significantly more complex and needs professional advice.

Steve

[ntgd]

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James,

You really should be talking to your accountant about this.

Generally the profit from the company is income in nature and the money you invested will be capital in nature, the way they are treated are totally different.

It will also depends on how the intial investment were done and recorded. For example were the amount treated as a loan or treated as the value of the shares.

You accountant should know your business better than any of us, go talk to your accountant or find one that you are comfortable and happy with for advise.

Ask any question in relation to your business so you know what to do and what not to do. I think you may also be a director of the company, so you will have director’s duties to fulfill. It’s up to you to know about your business, should anything gone wrong, ignorance won’t be a valid excuse.

[chixfashionz]

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This is not something for the unwary to play around with – you need professional guidance on it.

There are matters relating to whether costs are expensed (and claimed against income) or capitalised. You can’t simply write off all business expenses in the year they are incurred.

If you are a sole trader, then your tax return will include a section for ‘Business and Professional Items Schedule’ where a business’ profits and losses can be included. But what you CAN claim this year needs to be discussed with your accountant. Have a chat to your accountant about it.

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