Home – New Forums Money matters So confused … new company … how to pay myself!

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  • #983773
    Cocka2
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    Hi All,

    I am quite new in managing a business, please be nice :-)

    I’ve registered a pty ltd company 3 months ago to offer IT services in NSW.

    In our business we were contracted to deliver build web-based software products, my wife and I worked together to deliver.

    I’ve received a few payments and I want to pay myself ($1) and my wife (the rest).

    So far all the company’s income is parked in the company’s bank account.

    We both have personal ABNs but we have never quoted/used them.

    The company has its own ABN/TFN/BankAccount. And we are not registered for GST.

    At this stage I am quite confused, what is the simplest way to manage the finances.

    How should I pay super ? what should I do with withholding tax ? do I need to collect withholding tax, if so, where do I report it ? where do I report individual employees income and the part of their salary which I withheld ?

    Is it easier to just pay myself and mywife using our personal ABN numbers ? Or is it easier to have us as employees of the business.

    Thanks,

    #1144147
    Past-Member
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    If you and your wife are employees you have to registered as an employer with associated costs of super and PAYG and other associated costs. I would really encourage you to discuss this with your accountant. You must get this right from the beginning in order to avoid problems or fines from the ATO in the future.

    #1144148
    Anonymous
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    Hi Cocka2,

    Welcome to Flying Solo :)

    As Karen mentioned, these are the types of questions that you’re best advised to discuss with your accountant as there are numerous issues to be considered, many of which will be unique to your personal situation.

    We have plenty of them around here, so hopefully someone will pop on board and offer you some general information as background to get you started.

    Good luck with it all,
    Jayne

    #1144149
    KellyB
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    Hello

    Not sure if you have an accountant yet, but I would suggest seeing one may help!

    Basically, there are two ways you can draw money out of the company – either as a wage or as a dividend.

    Drawing money as a wage would mean you need to be registered for PAYG withholding. Once you register, you will recieve an IAS to lodge every 3 months – this is how to forward the tax withheld on your salaries to the ATO. You would need to pay 9% (soon to be 9.25%) super on your wages to your relevant super funds if you are earning more than $450 a month (I think that is the threshold??) and you also need to register and pay workcover.

    As far as I know dividends can only be paid out your retained earnings (ie profits after tax), so you really need to have a very good idea of what that would be before you declare a dividend (and dont forget to take into account things like depreciation, company tax etc in your calculations). If you draw too much, you can end up having the situtation where on paper the company has ‘loaned/given’ you money (ie your draw more than your share) and I have been told there can be harsh penalties for this from the tax office.

    I know you mentioned that you had personal ABNs, and could pay out that way, however I think according to the ATO you would be employees and would need to be paid a wage, rather than as a contractor – there is a tool on the ATO website that can help you decide if you are an employee or contractor.

    #1144150
    KellyB
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    Actually just realised that dividends may not work in your situation – as you have said you want to pay yourselves different amounts. Dividends are paid based on your shareholdings in the company, and I assume you may hold equal shares, therefore the payment would need to be paid out equally.

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