# Company or individual?



## Bin57again (17 June 2005)

Do most people trade as individuals or as companies?
I was thinking that if you trade as an individual, I guess you're using post-tax dollars but if you trade as a company, you can treat your profits as corporate income and be taxed at a lower rate and set-off deductibles. For example, chart software, new equipment, courses. 
Before I spend a fortune seeing Johnny Accountant, could anyone offer me some advice?
PS - I know you need to make a profit first!


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## GreatPig (17 June 2005)

You can also buy shares in a trust structure.

While I can't say what's best for your situation, my personal situation is:

I hold an investment portfolio in a trust and trade in a company owned by a trust.

The investment portfolio is in a separate structure to the trading entity to avoid having it all classed as trading. And it's in a trust rather than a company so that I can still get the 50% CGT discount where applicable.

The trading entity is a company primarily so that it can retain profits at the company tax rate while building up trading capital. It's owned by a trust for flexibility in distributing future dividends, and also to avoid having it owned by individuals for protection reasons. That does introduce a few issues related to the distrubution of franking credits and carrying forward of losses, but nothing's perfect.

Of course an entirely different arrangement may best suit your situation, so you will need professional advice.

Cheers,
GP


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## money tree (18 June 2005)

why pay 30% when you can pay 15% (or 0% if you know how)

this may help:

http://posigear.8k.com/posigear1-2.pps


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## GreatPig (18 June 2005)

money tree said:
			
		

> why pay 30% when you can pay 15%



Because I don't like being locked away from my money, and I don't trust the government - this one or future ones - to keep their sticky paws off my nest egg.

To me, super is like insurance: they can offer all the incentives they like to get you to put money in, but you never really know if you'll ever be able to get it out again when you need it. And commercial super funds don't exactly dazzle with their returns, while SMSFs are high maintenance.

Out of interest, I started to have a look at your Powerpoint display, but, without meaning to be rude, I have to say it's perhaps the most frustrating presentation I have ever seen. That technique of presenting only one tiny piece of information at a time, and having it "fade" (for lack of a better word) in and out the way it does, makes it extremely difficult to browse through quickly. Do you perhaps have a PDF of the whole document?

Cheers,
GP


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## tech/a (18 June 2005)

GP

Without singling out Tree as he is one of many in an industry which needs to be vacuumed---------I cant agree more.

The latest "ploy" is the "benifit" of being able to control your own super.

*Here is the actual meaning of controlling your own Super.*

"We have a problem Huston----we never considered that compulsive super may not perform even worse it could make a loss!
We are making it compulsory for wage earners to follow "Expert" recommendations where to allocate funds with no guarentee that there will be a positive outcome---OOOOOPS----just think of the possible litigation----Quick legislate and give them the IMMEDIATE benifit of controlling their own super.-----*Shift the liability to the consumer*----" and the industry is selling it to Joe public as a great benifit.

See the TRUTH is that advisors are just as fallable as you and I.
Most have no or very little practical experience in implementation of wealth creation methods.
*Most advisors are themselves striving to become as wealthy as most clients they represent!!!!*

Hiding behind clause after clause about RISK when investing money.

What about Risk mitigation!! 

Everyone out there with super!!

When was the last time your advisor rang or mailed you with the following.
EG (Not necesserily applicable to now)
" Peter international Small caps are currently booming I suggest we shift the majority of your funds here"
Or
"Peter markets collapsing Id suggest cash until a recovery and that 100K you have put it into Realestate as thats moving well above previous years"

They are more interested in commission than your performance.
GENERALLY SPEAKING---there are geniuine hard working,straight shooting,worth knowing financial advisors out there---who would agree with me,as the type I speak of are parasitic to their industry.

*To the question asked in this thread.*
If your earning more than a wage then you need to seek the advice of a CPA and youll be able to afford it!

If not trade as an individual until you need/can afford an accountant.


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## doctorj (18 June 2005)

> If your earning more than a wage then you need to seek the advice of a CPA and youll be able to afford it!




Or a CA. 

You'll find that the qualification process for the CA is typically considerably more rigorous than the CPA and in general (and in my experience) there's more value in those that have the CA.  Ofcourse, there are exceptions to the rule as there is with financial planners. 

As the new income tax rates roll in, there's going to be less incentive for the majority of individuals to use complicated company structures for their own trading.  Many may actually better off trading under their own name than that of a company.  This is something an accountant will be able to advise you on.

Don't underestimate the value of quality advisers and generally you shouldn't shirk at paying for it.  If its good advice, it will pay itself back many times over.


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## ob1kenobi (18 June 2005)

doctorj said:
			
		

> Or a CA.
> 
> You'll find that the qualification process for the CA is typically considerably more rigorous than the CPA and in general (and in my experience) there's more value in those that have the CA. Ofcourse, there are exceptions to the rule as there is with financial planners.
> 
> ...




I agree! I also took legal advice over the best structure for me in the here and now. Presently operating as a Sole Trader with the caveat that should it become better legally or financially to convert to a company strcture then I will. The sort of deductions listed in the first post to this thread are not reliant on your legal structure. It's reliant on the fact that you operate a business of some kind. Anybody starting out should get advice from a suitably qualified Accountant and / or Lawyer. The lawyer I consulted specializes in commercial and corporate law.


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## Julia (18 June 2005)

To Great Pig:

GP, you say "SMSF's are high maintenance.  What aspect of these funds do you feel require a lot of maintenance?  I have a SMSF and find the maintenance required quite manageable.  Costs are reasonable - set-up was about $1000 and ongoing accounting and auditing run at about $1000 - $1400 pa.  Tax at 15% means for me anyway the overall costs are hugely less than having the funds in any other area.  I was paying a lot more when the funds were in "professionally managed super" and the returns now are approximately four times what they were when "professionally managed".
Some use of a full service broker  brings with it good quality free financial planning from the firm's specialist financial planners.
Paying for good advice, whether through an accountant, or brokerage which includes financial planning, can pay considerable dividends.


Regards
Julia


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## GreatPig (18 June 2005)

Julia,



			
				Julia said:
			
		

> you say "SMSF's are high maintenance.  What aspect of these funds do you feel require a lot of maintenance?



I don't have an SMSF, and don't know much about the costs, but from my understanding there are a lot of compliance issues that the trustees have to be wary of. A work colleague has had one for some years now and has found it rather time-consuming and a hassle.

It's also generally said that it's not worth having one unless you have at least $100K in it to invest, from which I got the impression that they're relatively costly to run. But the figures you gave sound quite reasonable.




> Tax at 15% means for me anyway the overall costs are hugely less than having the funds in any other area



Everyone's situation is different, and taxation is only one aspect of investment planning. Until this last budget, my funds into super were being taxed at 30%, reducing the attractiveness of it. And the returns, even at the lower tax rate, weren't very encouraging.

In the end though, it's the uncertainty of super that mostly puts me off, and the risks of having it locked away where I can't do what I want with it. With the aging population putting pressure on the government purse, I can see the huge pools of super being prime targets for extra taxes and levies in the future. And there's already been talk of increasing retirement age, and limiting super payouts to annuities (not sure what the current state of play is though, as I don't really keep up with this area).

So if it's costing me more in tax now, well that's a price I'm happy to pay for the higher SANF. And there are other ways to help reduce tax bills - like having a huge family so that there are always plenty of low-income earners to distribute to .

Cheers,
GP


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## money tree (18 June 2005)

GreatPig said:
			
		

> ... it's the uncertainty of super that mostly puts me off, and the risks of having it locked away where I can't do what I want with it.




Gosh. So you are afraid because you cant spend the cash you are not suppose to spend anyway? Who ever heard of growing wealth by spending? If anything its going to guarantee YOU dont stick your greedy paws in it. Funny that, an investment you can only add to.

Whats uncertain about SMSF? You manage it remember. The government doesnt have it now and never will.

Oh, and all the advisors say $100k min because they like to sting you $1600 for an annual review.........but if you learn what you need to know you dont need them, thus leaving $1k in audit costs, so really as little as $35k makes it viable.


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## tech/a (19 June 2005)

money tree said:
			
		

> Who ever heard of growing wealth by spending?




Come on Tree you cant be serious.The only serious wealth I've EVER made came and comes from spending! Business,Shares,Property.The MORE I've spent the greater the return.



			
				money tree said:
			
		

> Oh, and all the advisors say $100k min because they like to sting you $1600 for an annual review.........but if you learn what you need to know you dont need them, thus leaving $1k in audit costs, so really as little as $35k makes it viable.




Think the $100k figure is purely because ANY Super with funds lower even if it returned a very unlikely 20% would have difficulty servicing itself.
I've looked at SMSF but the restrictions on funds--I cant borrow against it,I cant sell it---means that the tax deduction limits what I wish to do with funds far more than I can earn from using them.So the Tax becomes a cost of doing business for me.A property developement that returns 20% nett on a $600k deal while using $300K that could be in Super is to me a far better proposition.Same with Shares I'd rather compound and use my own portfolio out of Super so I have the flexability of grabbing $$s when I want them.
Its a personal thing----but once you have enough in personal asset to retire a few times the equation becomes a little different---particularly when that asset/s are freehold un encumbered and taxed

Id never have been able to get myself in this position had I had funds tied to Super (My personal super is only around $80k from compulsary deductions) as I couldnt access them---opportunities would have passed by and Id have not been able to raise funds.TAX benifit---sure but at WHAT cost! 

This is my position and may not suit others--I present it as food for thought not advice of what to do in your situation.


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## GreatPig (19 June 2005)

money tree said:
			
		

> So you are afraid because you cant spend the cash you are not suppose to spend anyway?



I don't want to "spend" it, in the sense of buying cars and boats and so on, but I like knowing that how I invest it is totally up to me.

And of course it's intended that I'll be able to spend it one day, after retirement. However, when that day will be, and how I'll be able to receive it, are totally up to government whim. Plus once it's in there, and I can't take it out, if the government one day decides that all these "rich" people with lots of super (except MPs of course ) should really be taxed at the top rate, then I've lost the ability to move it to a better investment.




> If anything its going to guarantee YOU dont stick your greedy paws in it.



But then I think I'm far more interested in providing for my future than the government is. Their main concern is that I don't become a burden on their pension system. Beyond that they couldn't really give a stuff about how well I fare.




> Whats uncertain about SMSF? You manage it remember. The government doesnt have it now and never will.



The trustees manage it, but there are numerous restrictions on how they can manage it. And there's still the inability to take the funds back out of super should a better investment vehicle be found. Effectively once you've put money into super, you've burnt the bridge behind those funds, and I don't like avenues with no exit.

Cheers,
GP


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## Julia (19 June 2005)

All the posts made in the last day or two make absolute sense FROM THE POINT OF VIEW OF THE PERSON MAKING THEM.
I would guess from the comments of members that most are well below retirement age and therefore, no, it's just not appropriate to put funds into super.
Whilst not at retirement age, I've stopped working, and therefore a SMSF works really well for me.  I have other fairly minimal income and am able to take a lump sum from the SF twice a year to supplement this and provide for living costs.  
Most members seem to be very concerned about the compliance issues.
I really haven't found this complicated.  You need to  outline an "Investment Strategy" whenever that strategy changes, (ie if you move significant funds from shares to direct property), and simply keep a copy of that Strategy on the file and provide copy to accountant/auditor whenever it is changed.
Mine has actually remained largely unchanged since the inception of the SMSF and was quickly written - in about 20 minutes- from the bare bones outline supplied by my accountant in the set-up phase.  The only change has been when I moved funds from an allocated pension into the SF.
Re "the Trustees being responsible".  My SF has two Trustees - myself and one other person.  The other person simply needs to be someone whom you believe and trust could take over the running of the Fund should you become incapable, either temporarily or permanently, and once that person has signed all the initial documents, they can then sign General Power of Attorney, giving you the right to sign all documents on their behalf, and hence you don't need to involve that Trustee in the day to day running of the Fund, e.g. signing direct credit form for dividend payment etc.
At end of financial year, all one has to do is take bank statements, share register, contract notes, etc. into accountant and they do the rest.  No need to calculate net capital loss/gain, they will do that and file the return with the Tax Office who in turn send out a bill which doesn't have to be paid for several months.
If there's anything else anyone wants to know, please let me know.
Hope this helps anyone considering a SMSF.  For my situation, it has been extremely helpful and when I reach retirement age I'll review the whole situation re maybe an allocated pension or possibly something else entirely.
Just don't be put off, if you are in the appropriate age group, by dire warnings about the difficulties of compliance.  The basic rules to ensure this are very simple.
Good luck.
Julia


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## RichKid (20 June 2005)

Julia said:
			
		

> If there's anything else anyone wants to know, please let me know.
> Hope this helps anyone considering a SMSF.  For my situation, it has been extremely helpful and when I reach retirement age I'll review the whole situation re maybe an allocated pension or possibly something else entirely.
> Just don't be put off, if you are in the appropriate age group, by dire warnings about the difficulties of compliance.  The basic rules to ensure this are very simple.
> Good luck.
> Julia




Hi Julia,
Thanks for the positive view, are there any good books or resources you recommend? Maybe somethings you found useful? Thanks in advance!


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## money tree (20 June 2005)

Hi Julia

I for one would like to learn more. 

cheers


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## Bin57again (20 June 2005)

Going back to the start of this thread, one of the off-putting elements of incorporating a company is the ASICS fees. You're looking at $600-800 just in registering a vehicle (e.g. a Pty Ltd). Compare that with $80 in the UK or $120 in the US. What a con!


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## Julia (20 June 2005)

Firstly, with regard to ASIC fees:  these only apply if you set up the SMSF as a company.  I chose not to do this (a) because the set up costs were decidedly more than with using Trustees, and (b) because you then have to pay ongoing fees to ASIC every year.  I think these amount to something just under $300 pa at present.

In setting up a SMSF there are two options:
1.  Using a Company structure, as described above.  The advantage of this is that you don't have to involve any other person and can be completely independent.

2.  Using a structure which involves two or more Trustees.  The advantage of this is that it is quite considerably cheaper to set up and there are no ongoing fees to be paid to ASIC.  As I said in an earlier post, my Trustees are myself and one other person.  That other person needs to be someone you could if necessary rely on to take control of the Fund should you become incapable for whatever reason.  Only disadvantage of this structure is if the other Trustee decides to "retire" or withdraw for any reason.  Then a new Trustee has to be appointed and this involves formally documenting retirement of old Trustee and appointment of new Trustee by means of Minutes to the original Trust Deed which then have to be registered.  I had to do this a while ago and cost was $275.  This, however, was unusual, and mostly one would expect the co-Trustee to remain for the long term.  He/she once appointed, signs a General Power of Attorney for you to sign documents on their behalf and therefore has no further actual day to da y involvement in the running of the fund.

Books to read?   The ATO puts out a very helpful and comprehensive booklet entitled "DIY Super - It's Your Money...But Not Yet" - an overview on self managed superannuation funds.  The version I have is for "Trustees and Auditors" and I'd assume there is another version for Funds set up as a Company.

I also have a very useful booklet supplied by financial planning department of full service broker called "SMSF Guide for Trustees".  This is several pages long and too much to include here as an attachment.  If anyone would like this, just send me a PM  with your postal address, and I'll run off a copy and send it via ordinary mail.

I was mostly persuaded to set up a SMSF on the fundamental basis that "super is simply a vehicle to hold funds in a tax-advantaged environment"
The 15% paid within a super fund is surely substantially less than most of us would be paying in personal tax rates.

If you are interested in pursuing the idea, my suggestion would be to phone around accountants and financial planners, asking if they SPECIALISE IN SELF MANAGED SUPER FUNDS.  Many of them haven't a clue in this field.  Any who say they do should offer an initial free consultation, at which stage you can decide, having read the literature fromthe ATO, whether they know what they're talking about.  I also took the precaution of checking what they said with the ATO before proceeding.  An accountant is the person who, in consultation with their solicitor, actually sets up the fund.  The financial planner,if they are any good (and yes, there are a few out there) should be able to advise on whether a SMSF is a suitable vehicle for you personally, or if not, why not.  Every person' s needs are different and are very largely dependent on age and work situation.

Hope this helps.
Anything else, let me know.
Julia


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## GreatPig (20 June 2005)

Great posts Julia.




> "DIY Super - It's Your Money...But Not Yet"



I'm just a little concerned they might keep telling me that until the day I die  (DIY or otherwise)

GP


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## RichKid (20 June 2005)

Julia said:
			
		

> Books to read?   The ATO puts out a very helpful and comprehensive booklet entitled "DIY Super - It's Your Money...But Not Yet" - an overview on self managed superannuation funds.  The version I have is for "Trustees and Auditors" and I'd assume there is another version for Funds set up as a Company.
> 
> I also have a very useful booklet supplied by financial planning department of full service broker called "SMSF Guide for Trustees".  This is several pages long and too much to include here as an attachment.  If anyone would like this, just send me a PM  with your postal address, and I'll run off a copy and send it via ordinary mail.
> 
> ...




Thanks very much Julia, that really is very helpful, a great starting point for us. BTW, is that booklet you have in electronic format (ie scanned), if not that's okay, we could have emailed it around otherwise.


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## doctorj (20 June 2005)

DIY Super... It's your money, but not yet. 
SMSF - Trustee Guide (probably different) 
Superannuation ready reckoner: taxation and preservation rules for 2004–05


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## tech/a (21 June 2005)

*Julia.*

If you can't out perform Managed Funds.
OR
You can afford to hold vast amounts of Asset and or Cash--un touchable in a Superfund until you retire.
OR
You dont have the ability to grow your assets and or savings beyond 7% or so (The figure plucked out of the air by most Managed Fund examples) then
Super wether it be self managed (Read ---Your risk dont blame us) or held by funds maybe the way to go.
*(95% of people it seems---this is tragic!)*


But in the end you lose control of your $$s.
Opportunities are then limited.
If the rules change then your stuck with them.

Putting ALL your eggs in the Super Basket isnt wise in my veiw.
Some yes-----all NO! What risk control measures can you place on Super once its in?


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## money tree (21 June 2005)

tech/a said:
			
		

> What risk control measures can you place on Super once its in?




Super is the BEST form of asset protection.

it cant be taken during a lawsuit

it cant be taken during a divorse

it cant be touched by company creditors

it is immune from bankruptcy

it cant be spent by addicted gamblers, compulsive spenders or tryhard traders

compound effect of Invested funds, income tax vs super, $1000 Gross invested per year @ 7% p.a. over 50 years

Income - $1000
Tax = 48.5%
Tax - $485
net - $515
After 50 years - $139,000

Super - $1000
Tax = 15%
Tax - $150
net - $850
After 50 years - $230,000


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## tech/a (21 June 2005)

money tree said:
			
		

> Super is the BEST form of asset protection.
> 
> it cant be taken during a lawsuit




Not so in some rare cases---family law court!



> it cant be taken during a divorce




Not so--family law court!!!



> it cant be touched by company creditors




true



> it is immune from bankruptcy




true. but the Family law court could demolish it.



> it cant be spent by addicted gamblers, compulsive spenders or tryhard traders




If its self managed try hard traders can kill it.



> compound effect of Invested funds, income tax vs super, $1000 Gross invested per year @ 7% p.a. over 50 years
> 
> Income - $1000
> Tax = 48.5%
> ...




Yes and if you cant out perfom that then your suggestion is the better option.

Check it out the Family Law Court is a scary place to find yourself.
But yes tree there are many more instances where peoples money is better off locked away.-----from them!!!


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## GreatPig (21 June 2005)

tech/a said:
			
		

> Check it out the Family Law Court is a scary place to find yourself



The number one rule of asset protection: never get divorced! :

GP


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## Joe Blow (21 June 2005)

GreatPig said:
			
		

> The number one rule of asset protection: never get divorced! :
> 
> GP




...or never get married in the first place!  :


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## tech/a (21 June 2005)

Joe Blow said:
			
		

> ...or never get married in the first place!  :




Often joked about by many a "bloke".

But there are a few ways around this I know of.

Marry money!
Make enough for BOTH of you when your married.
Sign a pre nup.
Work as a team not individuals---the goal is common after all!


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## Julia (21 June 2005)

RichKid said:
			
		

> Thanks very much Julia, that really is very helpful, a great starting point for us. BTW, is that booklet you have in electronic format (ie scanned), if not that's okay, we could have emailed it around otherwise.




No, Richkid, not in electronic format.  It's no trouble to run off a copy and mail if you'd like that.  I re-read it last night.  It doesn't actually cover anything which is not included in the ATO booklet I referred to previously, but let me know if you want it.
Cheers
Julia


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