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  • #978683
    deal.with.it
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    Hi all,

    I’m hoping to start my event management business, with a company structure.
    I would be the sole director, and there would be no one else involved i.e. no employees.
    I’m trying to work out my tax requirements, and so i will describe a likely analogy.

    If each month, the company (me) took on one job, providing a service to public customers, and as a result the company was paid $1000 for this service. 12 months in a year, so 12 jobs, so the company received $12000 in the year.

    If the company paid dividends, as opposed to a salary, to the director (me) for the whole amount the company has received – 100% of profits, there would be no money left in the company’s accounts at the end of year.
    Would this mean there would be $0 for the company to be taxed at the company tax rate of 30%?

    Obviously the individual (me) would have to pay tax on dividends received when doing individual tax return. So how much would the individual have to pay in tax, and would this amount have to come out of the individual’s personal bank account (or other $ storage) as no tax is withheld throughout the year, dissimilar to an employee having tax withheld from each pay check the boss gives them?

    What about workers compensation and superannuation?

    If i travel for a job, what would occur with expenses? i.e. claiming travel expenses?

    Thanks for any help you can give.

    #1108820
    JacquiPryor
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    Hi there,

    I’m going to disclaim this, as I am not an accountant so the following is basaed on my understanding from experience and discussions with my own accountant:

    Based on your explanation, I imagine you would pay tax on the 12K, no different to if you earnt 12K a year in wages. Dividends paid still form a part of your assessable income for tax purposes. (I think the company is obligated to give you a statement when it pays dividends, so make sure you are familiar with those requirements too). If you are receiving other income then the tax would be worked out on total income for the year… If you did owe tax based on your income – then yes, this you would have to pay that tax from your own money to the ATO.

    As to the precise amount of tax you would have to pay – a few things will go into answering that. For example – is the 12K (example figure) the only income you will have in the year? Or are you continuing employed work at the same time? As well as the level of personal deductions you may have.

    If, for example, you continue some sort of employed work – let’s say on a part time basis where you will still receive 25K a year, which your employer is withholding tax from and then you earn the extra 12K in dividends then my understanding is that your total income would be 37K. From that you make your deductions etc, which let’s say is 7K for the year – this brings you to a ‘taxable’ income of 30K; of that you will have already paid appropriate tax on the 25K from employer, leaving you with 5K that essentially hasn’t been taxed yet. To figure out how much tax you would owe you would need to look at the tax rates for a 30K a year income and then deduct what your employer already paid on your behalf.

    As to workers comp/super – hoping an accountant will be along shortly to advise. My understanding is that the company would have to pay super if you are an employee of the company – but, not sure if they still have to if you’re not actually an ’employee’. If not, you would want to set up something to make contributions yourself.

    As to travel and the like – the ATO website sets out what is/is not a claimable deduction when it comes to travel. Assuming you are only try to claim what you can – then you could do it several ways – if it’s a proper deduction the company could pay the expense and then claim it on its tax return; or, you could pay from your personal money and then claim it on your personal return; Or, you could pay it and then the company could reimburse you for it – again, the company would get the claim then at the end of the year.

    This page
    at the ATO site goes into the sorts of things that you can claim as business deductions.

    Hope that helps. All the best with it.

    #1108821
    Chris Brodie
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    deal.with.it, post: 120895 wrote:
    Hi all,

    I’m hoping to start my event management business, with a company structure.
    I would be the sole director, and there would be no one else involved i.e. no employees.
    I’m trying to work out my tax requirements, and so i will describe a likely analogy.

    If each month, the company (me) took on one job, providing a service to public customers, and as a result the company was paid $1000 for this service. 12 months in a year, so 12 jobs, so the company received $12000 in the year.

    If the company paid dividends, as opposed to a salary, to the director (me) for the whole amount the company has received – 100% of profits, there would be no money left in the company’s accounts at the end of year.
    Would this mean there would be $0 for the company to be taxed at the company tax rate of 30%?

    Obviously the individual (me) would have to pay tax on dividends received when doing individual tax return. So how much would the individual have to pay in tax, and would this amount have to come out of the individual’s personal bank account (or other $ storage) as no tax is withheld throughout the year, dissimilar to an employee having tax withheld from each pay check the boss gives them?

    What about workers compensation and superannuation?

    If i travel for a job, what would occur with expenses? i.e. claiming travel expenses?

    Thanks for any help you can give.

    Hi,
    As a start you need to determine if a company is the right structure in light of your overall circumstances. Don’t set up a company because so and so did it. It’s your business “Ralph” and you need to structure it for your needs.

    Secondly, if all you are doing is providing your services as an individual and nothing else, i.e. hire of equipment, the provision of food or staff to man the event, then you will fall under the personal services legislation in the tax act. In simple terms the tax office will treat you as a individual even if you operate through a company.

    Thirdly if you earned $12,000 in a company and took the money out as a dividend, then the company would have a tax bill of $3,600.00. Also in the first year as the company has not paid tax, the dividends would be unfranked and you would end up with another $12,000 of untaxed income on top any other income you had personally.

    As an individual, if all you earned was $12,000 then there would be no tax to pay, however if you had already earned $50,000 and this dividend was on top, then you would have an extra $3,600 to pay (note the rates of tax change come the 1st July, 2012).

    The company as its own legal entity is required to pay super and workcover insurance on anyone deemed to be an employee of the company. In this case the payment of dividends would not meet this requirement, however if you were to pay yourself a wage or a directors fee this would.

    My advice is get advice from a qualified accountant.

    (Note: The “Ralph” refers to a bank ad from many a year ago and sadly shows my age)
    All the best,

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