Home – New Forums Money matters Two personal credit cards – can we put company funds into them?

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  • #982398
    mediaman
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    Hi everyone,

    We have two personal credit cards that we just can’t get control of. They are both maxed out and regularly we cannot make payments. The interest is building rapidly and there seems to be no clear way of getting out of it.

    We run a business and I draw a wage from that business for myself. On paper at least. I haven’t actually been paid for some time. More on that shortly.

    This is a bit complex, so please bare with me.

    All the money the business earns comes into one bank account. If there is money left over it is put on the credit card and I am paid. Because we have been doing it tough for some time now, there has been no money to pay the credit card and no money to pay me. The amount on the CC’s is increasing due to interest adding up on the cards.

    I did ask our accountant whether we could – to start reducing at least the interest adding up on the cards – put our company income directly into those personal credit cards when received and then make personal and company payments from those cards. This would eventually reduce the amount owing and substantially decrease interest we are owing. Eventually we would get out of the mess we are in.

    He said we could put company money onto the cards but whatever we deposited would be classed as my income and would be taxed. That is understandable and fine by me.

    My questions are as follows:

    1) If we deposit company funds into a personal credit card and ,therefore, that becomes my income, does that same income amount get reduced if we also make company payments for company expenses from that very same credit card? In other words, the credit card would essentially become the bank account for the company’s income and payments as well as my income.

    For example: If in one year I deposit $50,000 of company income into my own credit card but make $20,000 of company expenses from that same credit card in that same year, does that mean my actual income for that year is really only $30,000?

    The credit card essentially becomes a working account for the company, although in my own name. This effectively reduces our credit card interest and eventually will get the outstanding balance down. I thought this would be a smart idea, instead of just using, say, a business cheque account as the working account and never having any deposits into the credit card.

    I believe that even if we end up with no available funds in the credit card, regular payments would be made into it and we would not be missing out making the monthly payments. The bank would be happy.

    2)If we do use the credit cards for this purpose, does that mean any expenses associated with the credit card become tax deductions directly related with the company useage component of the credit card?

    Thanks for any information. I will talk to our accountant about all of this, but I thought someone here might be able to clear it up for me quickly now it’s the weekend.

    All the best.

    #1136614
    Divert To Mobile
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    mediaman, post: 155675 wrote:
    My questions are as follows:

    1) If we deposit company funds into a personal credit card and ,therefore, that becomes my income, does that same income amount get reduced if we also make company payments for company expenses from that very same credit card? In other words, the credit card would essentially become the bank account for the company’s income and payments as well as my income.

    Its a little messy but Yes.

    mediaman, post: 155675 wrote:
    2)If we do use the credit cards for this purpose, does that mean any expenses associated with the credit card become tax deductions directly related with the company useage component of the credit card?

    Not sure about that but if you want to do that, why not get a company credit card and just pay your other cc’s with it.?

    Of course that will be classified as drawings but before eofy get a personal credit card at and pay the company cc back. Do your personal tax then take drawings to pay off the personal cc. Have I lost it or have I got it?

    Best of luck,

    Steve

    #1136615
    mediaman
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    Thanks Steve,

    Honestly, I doubt we are in the position to obtain more credit at the moment (personal or otherwise) so we need to work with what we have. Additionally, I think it would be asking for trouble at this point getting another credit card anyway!

    I just thought that dumping all the company income into the (personal) credit card would show regular payments into the account thus reducing interest and late payment fees and late-night phonecalls from the bank trying to find out when our next payment is going to be made. Payments would essentially be being made every single time the company receives a payment.

    This way, we might not end up with much in the way of available credit for the first couple of years, but also we are not incurring extra unnecessary expenses due to making no payments whatsoever.

    Just wanted to make sure that business-related expenses being made from the same credit card would reduce my income so I didn’t get hit with a huge personal tax bill that really should belong to the company.

    Cheers.

    #1136616
    Healthy Personal Finances
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    I truly believe this cannot be answered unless we are aware of what structure the business is – sole trader, partnership, company ?
    If it is a sole trader – then the first question would be “yes”. However if a company, the answer might be different. For a company, my view would be all deposits would be your personal salary. You can claim things put on the credit card that are business related (so not all purchases – only those that are business related).
    So your personal salary would be all deposits.
    The company can then claim as deductible expenses whatever is the true expenses for the business (but this would not reduce your wage amount)

    If you are struggling with credit card debt, draw yourself up a budget for each week and plan for the next 6 months at least. I know it sounds mundane and boring – but it works. List your income and expenses that are necessary (such as bills, rent, etc) that will leave you with whatever surplus (hopefully) you have left. Don’t live above that number. This might mean not eating out, not enjoying some nights out, holidays, shopping, new things…but in order to reduce credit card debt – it is worth it in the short term.
    A mere $450 balance on a credit card if not paid off in full and only the minimum amounts paid each month – could take you up to 6 years to pay it off in full – and you end up paying nearly double with all the interest charges.

    Good luck and if you need help preparing budgets, just let us know.

    #1136617
    al.giffard
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    Hi Mediaman,

    The short answer is that, although it does make your accounts a bit more complicated and messy, you can do this and it wouldn’t usually impact your tax situation. The expenses paid on your credit card will usually still be expenses incurred by the company, and so they will still be deductible. The same principle applies to income.

    It’s important to make sure your accountant is involved and knows what you’re doing, because they will need to ensure the transactions are properly accounted for and to avoid any pitfalls.

    Cheers,

    Al

    Standard Disclaimer: This is general information and is not professional advice.

    #1136618
    James Millar
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    The tax Division 7A loan issues (essentially on related party loan drawings from a company) could probably be “managed” to minimise the personal taxable income amount. Given the condition of the business and the balance sheet dynamics you may not have much of a distributable surplus for the purposes of this section (which means no / low assessable income to you). It all depends on whether there are retained profits on the balance sheet.

    My advice would be to focus on meeting your bank commitments first and deal with tax obligations second. The ATO are fairly reasonable if you are making genuine efforts to stay on top of things so keep that in mind.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
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