Small business - how to pay a salary

[janet]

Hello all -

I am a business owner ? the structure is a Company run in Victoria.

I run an online business where income is very good and expenses are low ? I usually make a healthy profit monthly. I only have one staff member.

So I?m currently sitting with a healthy cash balance but need to know the best way from a tax perspective to withdraw from the account and pay me.

I am a sole shareholder ? and will like advice on the best way to pay myself a salary from the company ? I obviously have a mortgage (with an offset) so would like to reduce this as much as possible - as i'm paying interest personally with cash sitting in the company.

Any thoughts on the best way to pay myself?

I would like to reduce my cash balance which is sitting at around $90k ASAP but need advice on tax consequence.

Look forward to hearing from you and thanks in advance

 

[GaryT]

Sounds like you need to speak with an accountant but basically the main ways to get money out of a company are wages, superannuation contributions, FBTable benefits, or dividends.

 

[MRO]

Many ways to do this but you should get professional advice.

A common way is to draw an amount monthly and book this into a loan account. Then pay the loan account with a dividend at year end. Your accountant will handle the documentation and accounting entries for the dividend.

The most straight forward way is to pay yourself like any other employee however this will require you to withhold tax and pay super.

As i said, there a lots of options and advice is require to determine the correct one for you.

 

[Ace in the Hole]

Can't your company simply lend the money to your personal PPOR offset, then transfer back before EOFY ?
I don't know, as mentioned already, need to ask your accountant.

 

[Peter_Tersteeg]

Speak with your accountant about this, but here's what I do...

I pay myself an ongoing salary of $85,000. $80k is the threshold for the 30% tax rate, the $5k is about what my personal deductions are. This ensures that I only pay a maximum of 30% tax. The reason I want to keep my tax within 30% is because this is the company tax rate (it my by 28.5% now, but that's immaterial).

I also make sure that our personal budget is sustainable within that salary (plus my wifes salary).

The rest of the cash gets retained the company. I also store this cash in offset accounts dedicated solely to that purpose. It's still the business' money, but it's helping my mortgages.

There's a bunch of other things we do but that does require a bit more specialised advice. I also find that paying myself a regular salary and living off that helps me to run a better business and to live within my means.

 

[Paul@PFI]

As mentioned earlier - Personal advice is a must. The advice for personal service income would be very different to another small business.

 

[Rob G.]

The rest of the cash gets retained the company. I also store this cash in offset accounts dedicated solely to that purpose. It's still the business' money, but it's helping my mortgages.

Are you saying company funds are held in offset accounts against your personal mortgages ?

 

[Peter_Tersteeg]

Are you saying company funds are held in offset accounts against your personal mortgages ?

There's a bit more to it than just this, hence the suggestion to get good advice.

 

[DaveM]

Load up your company with business related deductions.. internet, car, phones blah blah

 

[coastymike]

If the company funds were being used against personal offset accounts you would have Division 7a issues.

 

[Scott No Mates]

$90k buys alot of accounting time.

$25k or more to your super (to the maximum limit), taxed at 15%, then the rest is below the 30% mark.

Consider other expenses eg: workers compensation insurance (if you are paying wages), public liability and professional indemnity/products liability.

Look at the other items listed but remember that FBT may not be effective.

 

[Terry_w]

If the company funds were being used against personal offset accounts you would have Division 7a issues.

And Corporations law issues.

 

[Terry_w]

Hello all -

I am a business owner ? the structure is a Company run in Victoria.

I run an online business where income is very good and expenses are low ? I usually make a healthy profit monthly. I only have one staff member.

So I?m currently sitting with a healthy cash balance but need to know the best way from a tax perspective to withdraw from the account and pay me.

I am a sole shareholder ? and will like advice on the best way to pay myself a salary from the company ? I obviously have a mortgage (with an offset) so would like to reduce this as much as possible - as i'm paying interest personally with cash sitting in the company.

Any thoughts on the best way to pay myself?

I would like to reduce my cash balance which is sitting at around $90k ASAP but need advice on tax consequence.

Look forward to hearing from you and thanks in advance

Janet - who owns the shares?

 

[Paul@PFI]

Sounds like you need to speak with an accountant but basically the main ways to get money out of a company are wages, superannuation contributions, FBTable benefits, or dividends.

There are extra costs and +/-'s to all the options. Workers comp, super, extra tax (dividends), tax timing (Franked or unfranked), FBT, Personal Services Income perhaps ?? Then there is being registered for all relevant matters eg PAYG Withholding.

Personal tax advice is the start and will steer you right. I would be unconcerned with reading the Corporations Act - A Div 7A issue isn't found in the Corps Act. Its a tax rule that deal with taxing money you borrow from a profitable company. Your accountant should explain it but its no major issue.