Another self-employed finance question

[mimimao]

Hi all,

I tried searching the forum and haven't found what I was looking for so please forgive me if it's been asked before.

I have a company that has been operating for a few years. For previous years it hasn't been earning much. Lately things are looking positive and I am likely to get a big chunk of profit from a few property deals. (can sell one deal for about 300k gain. property is held under a different one-off holding company)

I am thinking about spreading the profit over this (coming july) financial year and the next financial year(2015) so that I can have 2 year tax return financials for future loan application. (does this work?) I plan to invoice the one off company $150k this financial year then sell the deal after july and release all the $300k profit so I have $150k each financial year. I am aware I will need to pay GST by invoicing such a big amount

My questions are:
1.Does this make sense? or am i being silly?
2.would organising the profit this way make my future loan application look better(having 2 year tax return)?
3.Does it matter whether i receive the profit through director's fee or dividend(eg i'd get 70k through director fee and the other bit through dividend)?
4.when bank looks at tax returns do they check the company tax return as well? Any issues i may have with this?

thank you so much for reading this
I really appreciate it

mm

 

[Aaron_C]

Banks will look at tax returns of all entities that you are a director of.

 

[pinkboy]

If you are looking at profits like this, pay $400 and go see a savvy accountant. You will get your $400 back and more with some good advice.

pinkboy

 

[Terry_w]

I've never come across something like this but would imagine the lender will see the one off nature of the income and possibly won't take it into account - assuming you are director.

 

[mimimao]

Thanks for the replies. The temporary company will be shut down upon sale. So im guessing it wouldn't be relevant in future loan applications?

Also I'm just curious why would the bank judge the company profit to be one-off if the two year tax return are legitimate taxed earnings?

Each project is one off but I have a few and can source new ones. I didn't want to sell in a low market so ended up holding them in the last year or so

Thanks again for your replies!

 

[Kapital]

I agree with above, you will greatly benefit from sound accounting advice

 

[Paul@PFI]

Very good question actually.

There can be strategies to make it look like you earn heaps...Splitting income across financial years is oneway to reduce it or spread it. Problem with that is if you get a stack of income next year you also get the other $100K - Bummer. There is another often overlooked strategy. It involves dividends.

If a company pays you a $100K salary to reduce its profit it has $100K income it pays no tax. However lets assume it has $200K of income. You might not want another $100K of salary income as it increases your marginal tax rate and then there is super, workers comp etc. So why not allow Co to pay 30% tax....Then in the following year it can pay you a dividend of $100K...Here is the magic......

The following year the company pays a $100K FULLY FRANKED dividend since it has paid the Co tax of $30k. Now you might think the profit is the shareholders and its been taxed twice - The Co and you. Well P Keating introduced the imputation system which passes on a share of the company paid taxes to the taxpayer. So your tax reurn would show taxable income of $130K....Now that appeals to lenders. And you get a $30K tax credit too.

Now its a bit complex and doesnt work for all and there are strategies. Cashflow etc all need guidance. But you just learned a way for self-employed to pay taxes AND increase their inomes by 30% which lenders love.

So see a tax adviser. We can add value.

Of course you realise the "one off gain" isnt a capital gain eligible for CGT discount of 50% if its washed through a company. I guess it doesnt matter as its business income.

 

[mimimao]

That's great advice. Thanks heaps.
Yeah I was going to see an accountant (Already paid quite a bit in accounting advice which was very worthwhile) I just thought I probably need mortgage brokers opinions as to the most appropriate form of income to obtain loan in the future (i.e. does salary or director's fee look more appealing than dividend or does it not matter from a lender's point of view?)

I'll definitely go make an appointment with an accountant

 

[Mick C]

That's great advice. Thanks heaps.
Yeah I was going to see an accountant (Already paid quite a bit in accounting advice which was very worthwhile) I just thought I probably need mortgage brokers opinions as to the most appropriate form of income to obtain loan in the future (i.e. does salary or director's fee look more appealing than dividend or does it not matter from a lender's point of view?)

I'll definitely go make an appointment with an accountant

Directors fee or salary.