how do you pay yourself - business owner

[BMan]

just trying to work out how a business owner pays themselves

if i went into partnership how does this work

if you are operating as a sole trader or in a partnership you do not have the option of being employed by the business. This is because at law a person cannot employ themselves. In this situation you are limited to taking drawings and will be taxed on the net profit of the business.

Read more: http://www.smh.com.au/small-business/finance/how-to-pay-yourself-20110502-1e4j1.html#ixzz2ZIFwnc1X

so you basically draw money from the net profit of the business and the business pays the tax on the net profit? or do you also have to pay tax as your drawing a wage?

say on a 60/40 partnership split you would get either 40 or 60% of the profit and can do with it as you please?

 

[Peter_Tersteeg]

If you're in a partnership, all the money is already personally yours, you don't really pay yourself a salary. What you do need to do is ensure you've got enough surplus cash at any given time to pay your personal, business and tax liabilities.

Many people do run this structure as a 'psuedo company'. They have one or two accounts where they do all the business related trading from. They then transfer themselves an allowance to another account which is for personal use and they live of this. All the accounts inolved are in personal names (this is where offset accounts against your non deductable debt can work really well).

If the partnership were owned 60/40, you'd simply transfer the allowance to yours and your partners accounts on that basis. If you've got joint finances (such as a married or defacto couple), then you can transfer your allowances to a single joint account, the 60/40 split becomes more of an achedemic accouning exerciese.

Ultimately in a partnership tax is paid on a net profit basis and income and expenses across everything is taken into account and taxed at personal rates.

If you're running your business using a separate company structure, then you can simply pay yourself a salary as a normal emlpoyee of your company This is what I do and it works very well for me, I even get payslips. The company retains income tax on my personal salary which gets paid along side my BAS. It then pays 30% company tax against any additional profits which are held in the company.

 

[BMan]

thanks makes a bit more sense now

Ultimately in a partnership tax is paid on a net profit basis and income and expenses across everything is taken into account and taxed at personal rates.

dont fully understand this
if tax is paid on the net profit then what income and expenses are taxed at personal rates?

If you're running your business using a separate company structure, then you can simply pay yourself a salary as a normal employee of your company This is what I do and it works very well for me, I even get payslips. The company retains income tax on my personal salary which gets paid along side my BAS. It then pays 30% company tax against any additional profits which are held in the company.

so then even though your running your own business you still have a payg income and the additional profits from the business that you could draw out as per above?

 

[MRO]

Income - expenses = net profit.

A partnership doesn't pay tax, all profits are taxed in the hands of the partners. A partnership is not a separate legal entity, it is really just a group of people trading together.

A company is different and there are a number of ways you can get money from the company - wages, a loan or dividends. Each has its on benefits/costs.

A company generally costs more to manage (tax and accounting costs).

You really need to speak to an accountant.

 

[pinkboy]

If you're running your business using a separate company structure, then you can simply pay yourself a salary as a normal emlpoyee of your company This is what I do and it works very well for me, I even get payslips. The company retains income tax on my personal salary which gets paid along side my BAS. It then pays 30% company tax against any additional profits which are held in the company.

I draw a salary, along with my wife as well from the company, exactly as Peter does above.

pinkboy

 

[BMan]

Income - expenses = net profit.

A partnership doesn't pay tax, all profits are taxed in the hands of the partners. A partnership is not a separate legal entity, it is really just a group of people trading together.

thanks, makes more sense now

im not looking at doing anything at the moment but will go to an accountant if/when the need arises

i know this is a silly question buy if your in a partnership obviously the business needs surplus money to pay the bills so you cant just take your cut out of it. as theres wages,bills, holidays, super, tax etc to pay
would you have a buffer in one account and then take out the extra

also what would you benefit in turning your business into a pty ltd

 

[MRO]

thanks, makes more sense now

im not looking at doing anything at the moment but will go to an accountant if/when the need arises

i know this is a silly question buy if your in a partnership obviously the business needs surplus money to pay the bills so you cant just take your cut out of it. as theres wages,bills, holidays, super, tax etc to pay
would you have a buffer in one account and then take out the extra

also what would you benefit in turning your business into a pty ltd

Benefits of Pty ltd is limited liability, the business can fail and you can keep your personal assets in most cases. In addition it is possible, to some extent, to defer part of your tax liability beyond the 30% marginal rate.

In terms of drawings, that really comes down to what the business can afford. If you have plenty of cash draw some out. It is probably best to have a nice stash of your own before you start so you don't have to rely on drawing funds from the business in the early stage.