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  • #987648
    igbtys01
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    Hi All,

    My wife and I are considering starting a small primary producing (aquaculture) business whilst both continuing to work. We are hoping for some advice from those who are knowledgeable in this area.

    By the end of this financial year, we will have a combined taxable income of around $130 000 – $150 000 from our wages.

    I believe start-up for our business will be somewhere between $5 000 – $20 000.

    Impossible to tell incoming/outgoing $$ at this stage. Probably in the low tens of thousands pa, with a tight margin to start with, and we will not sell anything for at least 6+ months and maybe not be profitable for a little while (but hopefully not too long!!)

    So, just wondering what are the pros and cons of my scenario in going sole trader, vs. setting up a ptd lty company?

    What is the situation with tax? Because we will be eligible for the Non-commercial losses exception, does this mean the start up is tax deductible? If so, how much based on income this year of $130 000 (my wife and I), and start up cost of say $15 000. We will not start making money until next year.

    If we decide to go ahead, we will definitely see an accountant, but just hoping for some advice as we are still deciding whether it is going to be financially viable at this stage.

    We are also still not sure if both, or just one of us is going to be involved in the business at this stage.

    Cheers in advance,
    Tom

    #1163687
    Chris H
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    igbtys01, post: 189426 wrote:
    Hi All,

    My wife and I are considering starting a small primary producing (aquaculture) business whilst both continuing to work. We are hoping for some advice from those who are knowledgeable in this area.

    By the end of this financial year, we will have a combined taxable income of around $130 000 – $150 000 from our wages.

    I believe start-up for our business will be somewhere between $5 000 – $20 000.

    Impossible to tell incoming/outgoing $$ at this stage. Probably in the low tens of thousands pa, with a tight margin to start with, and we will not sell anything for at least 6+ months and maybe not be profitable for a little while (but hopefully not too long!!)

    So, just wondering what are the pros and cons of my scenario in going sole trader, vs. setting up a ptd lty company?

    What is the situation with tax? Because we will be eligible for the Non-commercial losses exception, does this mean the start up is tax deductible? If so, how much based on income this year of $130 000 (my wife and I), and start up cost of say $15 000. We will not start making money until next year.

    If we decide to go ahead, we will definitely see an accountant, but just hoping for some advice as we are still deciding whether it is going to be financially viable at this stage.

    We are also still not sure if both, or just one of us is going to be involved in the business at this stage.

    Cheers in advance,
    Tom

    Good morning Tom,

    Great to hear that you’re taking the plunge into aquaculture ;)
    I’m not an accountant so professional advise that is very specific to your situation would be worth getting.
    That said, I think the biggest benefit to incorporating is that you don’t have to pay yourself. Sole traders are taxed just as if it is income from your employer. With your current income tax bracket anything you get paid on top will be at that very high rate of tax. As an incorporated business you can leave the money sitting in the company bank account and only pay 30% tax on it.

    In the future a Pty Ltd company also lets you distribute profits to the one of you where it is most tax effective.

    The main reason I would recommend a Pty Ltd company to anyone who was seriously thinking about a decent sized enterprise is for the asset protection. What would happen if you got sued? This is an area where you might want to speak to an expert and look at structures as they suit you best. Most of the people I have spoken to recommend a Pty ltd with a Sole director (you or your wife) with all the shares owned by a discretionary trust that has a separate corporate trustee.

    Cheers,

    Chris

    #1163688
    Anonymous
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    Hi Tom,

    Welcome to Flying Solo :)

    We’ll put a shout out on social media and see if we can rustle up some advice for you, but first could you please clarify – are you after advice from someone experienced in aquaculture, or from an accountant regarding the business structure? (Or both?)

    Thanks for joining us, by the way,
    Jayne

    #1163689
    TehCamel
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    Chris H, post: 189450 wrote:
    In the future a Pty Ltd company also lets you distribute profits to the one of you where it is most tax effective.
    I could be wrong, but I think this might be incorrect. a P/L doesn’t let you distribute where-ever you want. I believe to distribute profits, it pays them out to shareholders., based on class of share.

    Quote:
    . Most of the people I have spoken to recommend a Pty ltd with a Sole director (you or your wife) with all the shares owned by a discretionary trust that has a separate corporate trustee.

    This sounds a bit more like it would let you distribute profits however you want:

    P/L Trading Company makes 100K profit, determines to retain 50% of profit and pay 50% out to shareholders.

    The Sole Shareholder, Trusting Trust, has an income of 50K which it must pay out to the beneficiaries (however, it can do so however it likes, within the bounds of the deed)

    #1163690
    igbtys01
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    Thanks everyone for the responses and the welcome to your site :-) That is useful info on distribution of profits.

    I am mainly just after advice on how to structure the business, which I think will be based on what tax deductions I will be eligible for depending on if it is PTY LTD or sole trader. More specifically I guess, whether my start up costs can be deducted against my salary or against future income of the company/business, and if this is the same for both structures.

    e.g. If I was a sole trader, does this not mean I can classify the start up costs (say $20 000 for arguments sake) as part of my (or my wifes) personal income and offset on that for this financial year. Thus reducing my taxable income from (say) $80 0000 (wages) to $60 000 (-$20 000 start up costs). Would this be the same for a PTY LTD company?

    Or am I misunderstanding the way sole trading works? The company will not be profitable for at least 1 year (time it will take to grow the product).

    I am already in discussions with a couple people regarding the specific aquaculture business I am in. They all have it as their sole income though, so am really after some advice on doing this as a second income stream.

    Thanks again.

    #1163691
    Chris H
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    • Total posts: 111
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    TehCamel, post: 189504 wrote:
    I could be wrong, but I think this might be incorrect. a P/L doesn’t let you distribute where-ever you want. I believe to distribute profits, it pays them out to shareholders., based on class of share.

    This sounds a bit more like it would let you distribute profits however you want:

    P/L Trading Company makes 100K profit, determines to retain 50% of profit and pay 50% out to shareholders.

    The Sole Shareholder, Trusting Trust, has an income of 50K which it must pay out to the beneficiaries (however, it can do so however it likes, within the bounds of the deed)

    Hi Mate, yes I was talking about a Pty Ltd company owned by a trust.

    In terms of distributing income a Pty Ltd Company when the shares are held by a discretionary trust. You are correct that any money paid to the trust must be distributed, however you don’t have to pay dividends to the trust. You can keep money in the Pty Ltd company where it will be taxed at a maximum rate of 30%.

    #1163692
    Past-Member
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    From what I understand, you have to have turned over at least $20K in business before you can claim any deductions. They can however be currently still held for the next financial year.

    However, tax regulations constantly change.

    See business pages at the ATO starting here
    http://www.ato.gov.au/Business/

    #1163693
    igbtys01
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    Thanks Karen,

    I believe as a primary producer, I will be exempt from this requirement of $20 000 turnover, or am I missing something?

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