Creating a company to trade under

[Gunslinger]

Re: Setting up a Company?

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After reading the replies on this forum and conducting further research I am going to incorporate a company and conduct all my trading under it. Personally this is a big boost to my ego and I look forward to seeing myself as an "employee" making a profit that I have access to but is not mine to spend on personal expenses. As stated before I am going to start recording in detail all my expenses relating to trading to claim as tax deductions.
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Hi toll,
Good to see you've got a plan.
Do you mind me asking what sort of figures you're anticipating for fees for 1. setting up the company and 2. ongoing management?

I've thought about this in the past but have basically discounted it until I build a substantial portfolio (1/2M?), maybe I need to broach it with my accountant again.

Cheers,
JB

 

[Sir Osisofliver]

Re: Creating a company to trade under...

Hi Sir O,
I can see the benefits of having another company as a beneficiary of the trust but with the franked dividends, what's the benefit?
You still have to pay the difference between the 30% (fully franked) rate and your personal tax rate no?

Sorry if I'm a bit slow, I am new to this

Cheers,

JB

Gunslinger,

It depends upon your MTR. If for example income in your personal name was relatively small, EG 30% tax rate, then the dividends being paid to you leave your effective tax rate unchanged. If all your investments are not in your own name then unless you are in a high paying job (and there are always options in regards to this as well), you are likely to have a low MTR.

There may also come a time when you decide that you would like to take a year off work to have a child, or bum around Europe with a Swedish underwear model. You then make a payment from the bene company when you have no income to relase the funds at a minimal tax regime.



Cheers

Sir O

 

[Sir Osisofliver]

Re: Setting up a Company?

Hi toll,
Good to see you've got a plan.
Do you mind me asking what sort of figures you're anticipating for fees for 1. setting up the company and 2. ongoing management?

I've thought about this in the past but have basically discounted it until I build a substantial portfolio (1/2M?), maybe I need to broach it with my accountant again.

Cheers,
JB

Gunslinger - by the time you build a 2 mill portfolio you may incur some significant CGT to transfer that into the corporate entity. What may save you a small amount in the near term may cost you a significant amount in the long term.

Cheers

Sir O

 

[Gunslinger]

Re: Creating a company to trade under...

Gunslinger,

It depends upon your MTR. If for example income in your personal name was relatively small, EG 30% tax rate, then the dividends being paid to you leave your effective tax rate unchanged. If all your investments are not in your own name then unless you are in a high paying job (and there are always options in regards to this as well), you are likely to have a low MTR.
...

Yes, but if you (or your spouse/child etc..) were the only beneficiaries of the company then you'd end up paying the same $ tax anyway.
Definitely worth it if you get to backpack with a swedish underwear model though

Thanks for the other reply too and a BIG thanks for the beginners thread.

Cheers,
JB

 

[The Muffin Man]

Re: Creating a company to trade under...

You missed a structure. (Of course it's not necessary until the income level is...substantial so it doesn't suit everyone).

Company> Trust> Trustees + Beneficiary Company

By having a separate company as one of the beneficiaries of the Trust and the ability of the Trustee to direct funds at the Trustee's discretion, in addition to transfering funds to the other beneficiaries, excess funds can be transferred to the beneficiary company.

You've now fulfilled your obligation to pay out all funds earned in the trust, but limited the payment being made to you (and your MTR). You can then build funds in the Discretionary company for multiple reasons.

1) Lend money back to the Trust, investment company or yourself for future investment
2) Payment of franked dividends to the company directors (you)
3) Risk management (war chest or reserves)

Cheers

Sir O

You need to be extremely careful if you use a bucket company as a conduit to distribute profits from a trust. The ATO is currently looking at treating unpaid present entitlements to Companies as loans. This is sending shivers down the spine of many, many accountants, especially as the ATO is looking at applying this view retrospectively.

 

[tollbridge]

It's interesting to see how my thread regarding creating a company to trade under has yielded multiple strategies to minimise tax. I am not "having a go" or saying it's a bad thing however I want it to be known that with the exception of the 30% company tax rate my reasons for wanting to set up a company have nothing to do with tax avoidance or minimisation.

I have just finished reading "The Wolf of Wall Street" and so I'm probably a little more paranoid right now than normal. When I first began trading, the very first lesson that was drummed into me by my mentor was that paying tax is unavoidable. There are some extremely intelligent people who are able to "beat the system" but I know in myself I am not one of them. I would rather spend the time and energy researching and trading stocks and simply paying my tax bill in full at the end of each year. By doing this it completely removes any feelings of guilt or paranoia and makes by books squeaky clean. I also do not donate to charity or non-profit organisations as I believe this is the duty of the government and as I pay my tax in full I am already contributing.

I'd like to state that the views and opinions are of mine only and I certainly do not encourage others from making the same decisions as me.

Hi toll,
Good to see you've got a plan.
Do you mind me asking what sort of figures you're anticipating for fees for 1. setting up the company and 2. ongoing management?

I've thought about this in the past but have basically discounted it until I build a substantial portfolio (1/2M?), maybe I need to broach it with my accountant again.

Cheers,
JB

Hi JB

Part of my trading plan is to keep everything I do as simple as possible. My partner has an existing relationship with a CPA on the Gold Coast and I will utilise her services for taxation issues beyond my knowledge or control.

I have found a website which claims to set up a company and all the required documents for a fee of around $800. I won't post the URL on here but a simple Google search of "create a company" should bring up what you're looking for. This is of course just the initial set up fee and to be honest I'm not sure of the ongoing reporting requirement expenses. I'd be interested to hear from anyone who has used a website such as the above and do so at your own peril - it could certainly turn into A Current Affair material.

I would definitely advise you to make an appointment with your accountant to discuss what future fees you would be liable for.


Tollbridge

 

[The Muffin Man]

If you want the entity to be a share trader, then a company is probably the best entity for it. If you trade shares, anything you earn is ordinary income, not a capital gain. Just remember that you can really only take money out of the company as a dividend, once you start loaning money from the company all sorts of problems can arise, unless the loan is on commercial terms.

If you want the entity to invest in shares and hold them, then a trust would be the better option I think.

It depends what you exactly what you want to do inside the entity.

There is nothing wrong with minimising your tax either, as long as it's done within the rules. The rules allow for quite a bit of tax minimisation.

 

[RazzaDazzla]

IMO the $800 would be better spent by buidling a relationship with an accountant/solicitor rather than giving it to some website that says they can setup a business for you for $800.

As for minimising tax, I always remember this quote from Kerry Packer. When asked about his company's tax minimisation schemes, he replied:
"Of course I am minimising my tax. And if anybody in this country doesn't minimise their tax, they want their heads read, because as a government, I can tell you you're not spending it that well that we should be donating extra!"

I wish I could find a you tube video of him saying this. I've seen it before and it's hilarious!

 

[Gunslinger]

...I also do not donate to charity or non-profit organisations as I believe this is the duty of the government and as I pay my tax in full I am already contributing.
...
Tollbridge

Hi Toll,
Dont take this as an attack as it's not meant to be but.
From my point of view the point of the government is to provide for health, education and old age and to design and police a framework of fair and unobtrusive laws which society can operate under.
The rest should be left to private enterprise as they should do it more effectively as they have more intrinsic motivation.
Giving to charities and supporting the less fortunate is IMO the job of the public and an important part of the evolution of humanity and if we lived in a fairer society, a lot of our issues would be lessened.
IMO a lot of the legislation coming out of governement these days is far overstepping the mark and (with one notable exception) biased largely in favour of big business.

Have a nice day

Cheers,

JB

 

[tollbridge]

Hi JB - point taken.

I'm sure that there are billions of arguments on the internet regarding world issues such as poverty, war etc. My policy is still that it's up to the government - the men and women whom the majority of the popularion have elected to be the custodians of the federal reserve to be the main contributors for support financial and physical aid to both domestic and internarianl areas of need.

Again let me stress this is my view only and I certainly don't discourage anyone from dontating to whatever cause they feel drawn too. In fact,I think it's an admirable trait!

 

[prawn_86]

Just as a quick aside, i am looking at starting a company soon. What are the annual fee's charged by ASIC? I cant seem to find it anywhere on their site.

Thanks

 

[tradingdays]

Unfortunately due to the ATO's (and dare i say labor gov??) wonderful new ruling the trust > bucket company set up is no longer worth it as in short will created a DIV7a issue if funds that are distributed to the company arent actually distrivuted to the company. This creates all types of headaches look up TR 2010/3 on the ATO site if you want to know the nitty gritty.

IMHO if your earning a decent wage elsewhere the company is the best set up to go with. Tax is capped at 30%, you dont have to distribute profits and most profits will eventuallly be paid out with 30% tax already paid ie - franked dividend. As a bonus in the future the company tax rate is falling to 28%.

Have you thought about a company set up as follows: Company with diff typoe of shares A - class, B - class. Your the director means your in control of where the dividends are paid. Having different types of shares means that yopu could then have discretion as to who is paid a dividend.

So lets for hypothetical sake say the A class share is owned by your family trust. You could pay a dividend to the family trust and then distrivute this dividend to the beneficiaries ie - you, your parents? your children etc. therefore taking advantage of each persons lower tax bracket.

Then lets say for arguments sake your parents have reached retirement age. your parents openn a smsf and this smsf owns the b class share. As the smsf is the taxed at only 15% you distribute all the dividends to your parents smsf as the dividends are franked at 30% you get a tax credit of 15cents in the dollar.

Hypothetically your parents could then draw down the money and gift it to you. You could then lend the money back to the company to trade with. The company could then pay you a nominal/minimal/no interest on the loan. As it is a loan to the company you could then draw this loan down at any time with no tax consequences.

End result is youve effectively only paid 15% tax.

This is all HYPOTHETICAL however and I would ADVISE YOU TO SEEK PROFESSIONAL HELP.

Just as a quick aside, i am looking at starting a company soon. What are the annual fee's charged by ASIC? I cant seem to find it anywhere on their site.

Thanks

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