Home – New Forums Money matters Ways to pay yourself when your the owner of a ASIC listed company

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  • #979619
    Andee
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    Hi guys,

    If there’s a previous answer to this please just post the link.

    I own a company and pay myself a wage as a director, withholding tax which I pay quarterly along with company GST. I also pay super at 9% as an added expense to my company on top of my wage.

    What I’d like to know is paying a wage the only way that I can earn a personal income from my company, or can I take ‘drawings’ similar to a partnership?

    Also, just checking, super is calculated off your before tax gross wage or your after tax net pay?

    And as a company I am required to pay myself super by law correct?

    Cheers for any help, just looking at my monthly overheads and checking all my figures are correct.

    Andy

    #1115787
    Cjay
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    Who is the owner of the shares? The other option is through providing dividends to the shareholder/s.

    In many cases this might be a trustee company who distributes through a discretionary trust to the owner/s

    #1115788
    ray_223
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    Cjay, post: 129842 wrote:
    Who is the owner of the shares? The other option is through providing dividends to the shareholder/s.

    One accountant I spoke to a year or so ago mentioned the ATO are cracking down on large dividend payouts in lieu of a salary.
    Either way – get some ideas online – then to talk to an accountant.

    #1115789
    apj
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    Hi Andy,

    I’ll try and knock a few of your questions off the list.

    This is general information only. As stated above, you need a good tax accountant to have a look at this for you.

    1. Yes your company has to pay super at 9% on your behalf even though you are a director. Make sure you pay it quarterly by the due dates.

    2. Your super is calculated on what is called your OTE or Ordinary Time Earnings. As a director this is usually your gross wage before tax. For employees one of the main exemptions from OTE is overtime and leave loading.

    3. Super isn’t an expense, it’s forced savings – you’ll be grateful you’ve got it one day!

    4. As pointed out, the other main way to extract money from your company is by dividend. This may or may not be more tax efficient depending on a) available franking credits in the company; b) who owns the shares and their tax profiles. You can also take cash out from the company which is applied to your loan account. This can then be cleared by dividend at a later point. If you get it wrong however you can be penalised by a nasty set of rules called Division 7a.

    5. Depending on a whole bunch of things it may be possible to look at restructuring your company to achieve a more tax efficient outcome for example by ownership of shares, or class shares, by a discretionary trust. The ATO don’t necessarily love this but haven’t yet started outlawing it.

    Hope this helps.

    Cheers
    Aaron

    #1115790
    Cjay
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    ray_223, post: 129852 wrote:
    One accountant I spoke to a year or so ago mentioned the ATO are cracking down on large dividend payouts in lieu of a salary.
    Either way – get some ideas online – then to talk to an accountant.

    Really? I’m guessing they ping it under the ‘catch-all’ tax dodge rule?

    Hey, if I want to pay myself as a director only $20k a year….

    :)

    #1115791
    Greg_M
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    As always, check with your accountant but I recently set a Co. with a discretionary trust, my advice was I could go either way, draw a wage and do all the things previously mentioned or allocate income through the trust.

    This entity has only been in existence a couple of months and I’m still dithering which way to fly, probably from bad memories of having pay rolls in other businesses and not wanting to buy into the extra admin and returns to super funds, ATO etc.

    I have no employees but if I did and was already doing the payroll admin thing, I think I’d probably pay myself a wage.

    Be interested to know what others do and why, might stop me dithering.

    #1115792
    JacquiPryor
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    Hi All – I’ve often asked myself the same thing that Andy has asked here so, thanks Andy for asking and thanks to those that have replied! Am hoping to perhaps gain a little elaboration on a couple of points…

    4. As pointed out, the other main way to extract money from your company is by dividend. This may or may not be more tax efficient depending on a) available franking credits in the company; b) who owns the shares and their tax profiles.

    To the above – could someone direct me to the appropriate (ATO I assume) pages where I can learn more about this? How do I determine the available franking credits in my company etc. I am the only director and only shareholder…

    You can also take cash out from the company which is applied to your loan account. This can then be cleared by dividend at a later point. If you get it wrong however you can be penalised by a nasty set of rules called Division 7a.

    I’ve been previously advised (by an accountant) that a director’s loan account should never been in the negative (i.e. the director should never owe the company money)… Therefore, if the company does not owe me any money but I was to take cash out in the way then I would owe the company money, which would see the loan account in the negative for some time (until cleared by dividend) – so, in that situation is it still ok to do that?

    Be interested to know what others do and why, might stop me dithering.

    Not sure if my response is uesful, as I simply have the Pty Ltd, no trust set up involved – but, I simply pay myself a wage just as I would any other employee. Why? (this may be a silly reason…) Because that’s how I know to do it! When I was a normal employee for another company I did the payroll, so, am totally familiar with how ‘wages’ and ‘salaries’ work so just continued the same way I knew how even now I am the director of my own company!

    Thanks in advance – and again thanks for the replies so far :)

    #1115793
    ray_223
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    Cjay, post: 129947 wrote:
    Really? I’m guessing they ping it under the ‘catch-all’ tax dodge rule?

    Hey, if I want to pay myself as a director only $20k a year….

    :)

    I don’t know what the exact rule it was. He did say it was to stop people not paying super and workers comp.

    #1115794
    James Millar
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    I’ll set some of this straight

    1. There is nothing prescriptive within the tax law for a company that requires minimum related party salaries be drawn. There is however a provision that allows the commissioner to reduce related party salaries if he considers them beyond the market value for the job specification. So you can have nil salaries if you like. I have not seen or heard of the general anti avoidance provisions (non prescriptive part of the law) being used to bump up salaries.

    2. Franking accounts must be maintained each year and the franking balance should actually be reported in the company tax return. ATO will have a page outlining the various debits and credits to this account. If you don’t maintain it you are doing yourself a major disservice as franking credits are the only mechanism that prevent double taxation at company and then shareholder level.

    3. There is nothing inherently wrong with having a debit loan provided its correctly maintained and compliant with Div7a (related party loans) and FBT regs (loan fringe benefits).

    4. For a trust, some states have different rules on what constitutes taxable remuneration for the purposes of payroll tax and workcover. In some states taking trust distributions in leiu of salary creates taxable remuneration (payroll tax and Workcover) but in others it doesn’t. Check your state payroll tax and Workcover regulations for this. Edit – I think the recent payroll tax harmonization program has moved most states towards not levying payroll tax on trust distributions (advised to check your state).

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1115795
    JacquiPryor
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    Thanks James – especially re your points 2 & 3.
    I’ve found the relevant ATO pages I think re franking credits/debits etc and will have a good read… then, think I’ll be passing this one to the accountant to check/fix/report as necessary!

    Thanks again :)

    #1115796
    TehCamel
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    JamesMillar, post: 129996 wrote:
    4. For a trust, some states have different rules on what constitutes taxable remuneration for the purposes of payroll tax and workcover. In some states taking trust distributions in leiu of salary creates taxable remuneration (payroll tax and Workcover) but in others it doesn’t. Check your state payroll tax and Workcover regulations for this. Edit – I think the recent payroll tax harmonization program has moved most states towards not levying payroll tax on trust distributions (advised to check your state).

    James – thanks for your valuable post (which I craftily deleted..)
    Which states does p4 refer to.. ?

    #1115797
    James Millar
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    The states have organisations that manage administration of payroll tax (SRO) and Workcover. Fortunately the payroll tax harmonization program has brought some consistency in requirements across each state, particularly with regard to trust distributions in leiu of salary (mostly now exempt). I note however that the Vic SRO was successful recently in disputing that trust distributions made by a business were a sham as a replacement of salary to a non stakeholder. So obviously they still have the capability to reclassify items as wages for payroll tax in extreme cases.

    I can’t advise on the current status of each states Workcover requirements but their respective websites should have some guidance on this issue.

    Just a footnote to my point 1. Some qualifications to my comments. There are some instances where profits must be emptied by a company to key employees as salaries or super – primarily this relates to an old income tax ruling for incorporated medical practioners. In short those companies are not allowed to retain profits at the company tax rate for later distribution to shareholders.

    However generally speaking, if your business entity passes the PSI tests and it passes the general anti avoidance alienation of income tests then you can legitimately distribute profits over wages as you see fit.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1115798
    TehCamel
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    thank you :)

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