# Setting up a business for tax benefits and deductions



## insider (9 March 2007)

Hello ASF members I’d like this thread to be about how an individual can set up a registered business to gain the 30% tax rate. So basic questions like how to do it, how much does it cost, specific laws, qualifying for a business etc should be answered first? But I’d also like to discuss topics such as leasing vehicles for the business, claiming petrol as expenses, stationary etc. Basically any idea that comes to any members mind… I think this would benefit all members of ASF as it will encourage us all to think laterally for legitimate tax solutions.

Comments:


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## TheRage (10 March 2007)

The cost of establishing a company that I have found has ususally been around 1K. The benefit of trading shares through a company is obvious as the shares are all taxed at the on rate. However if you are not earning enough assessable income bear in mind that even the first dollar you earn is taxed at 30%. What this means is that there is no tax free threshold like there is in personal tax. The only other negative I can think of is that the government is free to change the amount of company tax as it sees fit. Not that this is likely to happen but certainly worth remembering. 

The positives;
1) Limited Liability:- If you go bust and have borrowed on margin the company wears the brunt of the creditors calling. Therefore it is unlikely your house will be sold from under you.
2) Flat tax rate for company with high income.


I am sure there are more positives but I just can't think of them at the moment.


Disclaimer this is not financial advice


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## insider (11 March 2007)

Thanks heaps dude...  

Where do you setup a business?


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## surfingman (11 March 2007)

insider said:
			
		

> Where do you setup a business?




Hi Insider,

You can start here http://www.business.gov.au/Business+Entry+Point/ that is all the info you should need there is heaps of online registration points very easy to do and takes a few days to finalize costs around $1000, or else you can do it yourself through asic I believe for around $500 but i haven't looked into that might pay to get some advice of an accountant to what bests suits your needs.


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## mft06 (12 March 2007)

Some other questions to throw into this can of worms!!

Where does CGT fit into the company structure, is there a benefit here?

What about the benefits of a family/unit trust as opposed to a company?

I know you can start a company (and a trust for that matter) on line at various www sites for as little as $600 au for a company & $150 for a trust.

If you can class yourself as a “Trader” is there a tax saving in this?

Under a company structure, is it possible to purchase a large holding of shares (profits realized in the next tax year) just before tax time to offset your CGT bill for that year & reduce your taxable income & if so how many years in a row could you do this for?

That’s just a couple for now, this could be a very interesting & educational thread


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## Strw23 (12 March 2007)

Where does CGT fit into the company structure, is there a benefit here?
There is no Capital Gains Tax for a company, just income tax.

What about the benefits of a family/unit trust as opposed to a company?
This kind of information should be discussed with your own accountant as everyone is different. I personally have a company as trustee for my trust. Gives me better asset protection should I go bust.

I know you can start a company (and a trust for that matter) on line at various www sites for as little as $600 au for a company & $150 for a trust.
I wouldnt trust online setups. From memory it cost me $700 for my company and $600 for my trust. It is worth noting that you should be making a decent proffit or want asset protection to consider this as the ongoing fees and regulatory requirements need to be considered.

If you can class yourself as a “Trader” is there a tax saving in this?
As opposed to what, an investor? The tax department has a set of crieria that determines this

Under a company structure, is it possible to purchase a large holding of shares (profits realized in the next tax year) just before tax time to offset your CGT bill for that year & reduce your taxable income & if so how many years in a row could you do this for?
There is no CGT. As a company you are meant to pay tax every 3 months on proffit made or on what they estimate your proffit to be

Scott


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## ctp6360 (12 March 2007)

Umm keep in mind that even though the company is taxed at 30% as soon as you take the money out for yourself you will be taxed at your normal marginal rate less the 30% franking credit - so as a "tax avoidance" mechanism a company is not a good idea.

Furthermore there are issues to consider when a company owns shares in another company, you really need to speak to an accountant about this. There are responsibilities in running a company you need to be aware of.


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## GreatPig (12 March 2007)

Strw23 said:
			
		

> There is no Capital Gains Tax for a company, just income tax.



I think it's the same as for personal holdings. If the company is just holding investments, rather than operating a business, then it does get capital gains or losses. However, there is no CGT discount and it's all taxed at the same company rate. The issues of offsetting capital losses against other income may still be there though.



			
				mft06 said:
			
		

> is it possible to purchase a large holding of shares (profits realized in the next tax year) just before tax time to offset your CGT bill for that year & reduce your taxable income



Purchasing shares has no effect on gains or profits, except for the additional brokerage in a trading business (where it's deductible at the time it's incurred). Buying shares, or any asset, is just a capital outgoing.

Also note that if you are operating a trading business, then the current portfolio at the end of the financial year is considered trading stock and has to be valued. Tax must then be paid on any increase in value - which effectively means you have to pay tax on unrealised gains.

And as Scott mentioned, if the company earns enough untaxed income in a year, then it will enter the PAYG system, where it will likely have to pay tax quarterly on earnings for the previous quarter (without considering any deductions first). But this is the same for individuals too.

GP


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## astojic86 (12 March 2007)

ahhahahhahahhahahhahahahahah


Limited Liability what a joke are you serious     


um no one is gonig to give your compay credit to use unless you got heaps of $$$$ and a director of the company "may" (MUST) gaurentee the loan, so if you go bust, your house will be up for auction, unless you can get some dumbass to gaurentee the loan instead. 


Company gives you no advantage, wehn you take the $$$ you will be taxed your individuual rate but you will be given tax credits,


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## GreatPig (12 March 2007)

I think the main advantage of a company for a trading business, for a high income earner (say on the top tax rate), is being able to retain earnings at the 30% tax rate.

If you do it in your own name then all profits will be taxed at 46.5% immediately.

If you do it in a trust, then all profits have to be distributed. The tax rate would then depend on who the funds were distributed to, but if there was only yourself (the high income earner) and perhaps a high-income spouse, then using a company gives you more money left over to continue building the business with.

Other plans can then be made later for getting it out at a lower tax rate (eg. the shareholder can retire or work part-time, or the company could be owned by a family trust and one or more of the other family members may not be working at that time).

In the end it depends a lot on personal circumstances (eg. other income) and the amount of profit likely to be generated. For small profits it wouldn't be worth it, but if you're talking tens or hundreds of thousands per year, then the difference could be significant.

Cheers,
GP


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## TheRage (12 March 2007)

astojic86 said:
			
		

> ahhahahhahahhahahhahahahahah
> 
> 
> Limited Liability what a joke are you serious
> ...




Hi,

If you had read my post you would have noticed I said borrowing on margin not equity loan. If the company owns a sizable share portfolio and then borrows on margin (against share portfolio belonging to company) then limited liability is a possibility because there is no asset attached to the loan except the shares. It is likley the remaining shares however would be gobbled up for credit.


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## Tyler Durden (15 June 2014)

This is the closest thread I could find to what I wanted to ask, so here goes:

During this financial year, I looked into starting a side business involving selling some products. I wanted to get some samples of the product first before fully deciding whether I should go ahead and start the business, and accordingly I incurred some expenses in obtaining this product.

However, as yet the project is still on hold and I have done nothing further, ie. not created a company for it. I just wanted to ask, are the expenses I incurred tax deductible? I have kept all receipts.


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## Julia (15 June 2014)

It's a bit  hard to imagine why, when you have not proceeded with the business, your expenses should be deductible imo.

We could all order stuff on the vague pretext that we needed it in order to assess the viability of starting a business in such a line, couldn't we?


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## Tyler Durden (15 June 2014)

Julia said:


> It's a bit  hard to imagine why, when you have not proceeded with the business, your expenses should be deductible imo.
> 
> We could all order stuff on the vague pretext that we needed it in order to assess the viability of starting a business in such a line, couldn't we?




Hmm yes, I see your point, it could definitely open the flood gates.

Perhaps I should've elaborated a bit further - it wasn't as simple as buying a sample. I had to liaise with the manufacturer, buy a sample to show them the basics of the design I wanted, paid for them to make an amended version of the sample, and also the shipping back and forth. Because they were overseas, there were also international transaction costs involved.

I purchased five samples and only used one to test, the other four are still in their packaging so they were my 'inventory' so to speak.

But I suppose it all comes back to your point, I could see a lot of people ripping off the ATO if this was the case, although in my situation is was genuine.


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## skc (15 June 2014)

Tyler Durden said:


> But I suppose it all comes back to your point, I could see a lot of people ripping off the ATO if this was the case, although in my situation is was genuine.




I don't see why a sole trader cannot claim a loss for the year but best see your accountant on this one.


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## DJG (15 June 2014)

Just to throw another in the mix, does anyone know much about parent/holding companies?

Lets say you own a Pty Ltd company called XYZ Pty Ltd, it also owns ABC which is an online store. XYZ also owns WTF which is another business of some sort.

Ie, XYZ is the "parent" company. So lets say WTF and ABC make a profit, they distribute any excess cash to XYZ as a dividend and XYZ Pty Ltd then acquires or creates more businesses. OR, XYZ goes ahead and puts those funds into the share market.

What sort of circumstances are we looking at?

Essentially a smaller version of Berkshire, parent company owns both shares in a public company but also owns 100% of a smaller private company.

Now let's just say Joe Bloggs owns XYZ Pty Ltd (100% shareholder). Would it be better for him to own ABC and WTF as separate entities and invest on the side or?

Sorry for the long-winded post but should throw another spanner in there.


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## craft (15 June 2014)

Tyler Durden said:


> This is the closest thread I could find to what I wanted to ask, so here goes:
> 
> During this financial year, I looked into starting a side business involving selling some products. I wanted to get some samples of the product first before fully deciding whether I should go ahead and start the business, and accordingly I incurred some expenses in obtaining this product.
> 
> However, as yet the project is still on hold and I have done nothing further, ie. not created a company for it. I just wanted to ask, are the expenses I incurred tax deductible? I have kept all receipts.




Money spent to start a business isn’t considered as a cost of carrying on business and as such is not tax deductable. If the business was already up and running then it would be R&D and deductable. But as you describe it I would think it falls into start up costs and not deductable. 

If you wanted to get creative, about the best hope would be to write it off over 5 years under black hole expenditure measures, but you would want to have a dam good business plan in place to produce assessable income from the business and such an approach would be aggressive and probably best contemplated with the assistance of professional tax advice. 

Mine is just an unqualified opinion on the internet which you should take with a grain of salt. But as a minimum before making the deduction you outlined I would at least seek a private ruling from the ATO It could avoid a lot of hassle associated with having the deduction disallowed down the track and incurring back interest/penalties and further scrutiny.


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## Tyler Durden (16 June 2014)

craft said:


> Money spent to start a business isn’t considered as a cost of carrying on business and as such is not tax deductable. If the business was already up and running then it would be R&D and deductable. But as you describe it I would think it falls into start up costs and not deductable.
> 
> If you wanted to get creative, about the best hope would be to write it off over 5 years under black hole expenditure measures, but you would want to have a dam good business plan in place to produce assessable income from the business and such an approach would be aggressive and probably best contemplated with the assistance of professional tax advice.
> 
> Mine is just an unqualified opinion on the internet which you should take with a grain of salt. But as a minimum before making the deduction you outlined I would at least seek a private ruling from the ATO It could avoid a lot of hassle associated with having the deduction disallowed down the track and incurring back interest/penalties and further scrutiny.




Ok thanks craft, very informative, and very thankful


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## SuperGlue (16 June 2014)

The links below will assist you with setting up your business.

https://www.ato.gov.au/Business/Starting-and-running-your-small-business/Starting-your-business/

https://www.ato.gov.au/Business/Ded...d-depreciating-assets/Other-capital-expenses/

From what I gather, it would be better to set up your business this financial year, so you can write off some of your expenses, if capital/costs is not an issue you can wait till next financial year.

You have only a few more days to do it.
Please see you accountant/tax advisor for more info.

Good luck.
SG


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