Pty Ltd for trading & individual account for investing

[inpursuitofhappiness]

Good day,

New member here.. so please be kind..
Background:

Have 2 different plans for investing for shares as:

1 – Long term hold >1 year.
2- Short term/positional trades & options trading to generate weekly income.

My portfolio is not that big as of now and will continue holding in my personal name so as to get the CGT discount to keep it simple.
However, I am getting serious about option 2 slowly and plan to do it in a more tax-effective manner

Now in terms of taxation, I am an individual doing this on the highest marginal tax rate with income from my primary occupation. Have been systematically tracking my trades with buy, sell, commissions, holding days & net P&L in an excel sheet. And being with IBKR- helps, as their activity statements are in-depth.

Have already set up a Pty Ltd company and associated bank account with myself being the sole director, as that enables me to take a decision for rolling profits&losses to next year, leaving it in the company so that its net value can grow.
Only for options trading & swing/ positional trading would be using company structure. This is slowly increasing in its value and being taxed at max. tax rates have started to pinch.

Presently with IBKR, happy with the service and the platform they provide with great rates and margins.
A few questions for you guys:
1) In order to operate as pty ltd does my brokerage account also needs to be under the company name or it can continue under the individual name as it is now. When the tax time comes I can highlight the trades and share the log with my accountant for working out the taxation for individual and the pty ltd.
2) If anyone has done this here, what is your preferred option as justifying 120USD for the investing account may not work out right.

Any pointers/ guidance in the right direction would be greatly appreciated.

Cheers

 

[bellenuit]

1) In order to operate as pty ltd does my brokerage account also needs to be under the company name or it can continue under the individual name as it is now. When the tax time comes I can highlight the trades and share the log with my accountant for working out the taxation for individual and the pty ltd.

You must open account in the pty name to trade under that pty. The fact that you are a director and owner of the pty makes no difference. It is a separate legal and taxation entity to you.

 

[peter2]

The Pty Ltd company must have it's own bank account and brokerage account. Everything must be completely separate from your personal trading activity. Capital provided to the pty ltd company should be covered by a contractual arrangement between you and the company, eg a loan with interest and a repayment schedule or in payment for a shareholding in the company. The company will have to be audited annually and provide a yearly tax return.

These arrangements must be set up properly at the beginning and you'll need advice and assistance from an accountant with experience in setting up companies for prospective traders.

 

[inpursuitofhappiness]

Hi bellenuit,
Thanks for your reply. Much clear now, thanks.

What would be the most cost effective way of keeping trading account and investing account seperate?

Option 1
With IBKR presently, one way is to use their Family office account structure.
Master account which manages 1 individual account & 1 company account, but will have to pay at least 120x2 inactivity fees.
For my trading, I am sure this will be offset by the commissions I will generate, however for the investing part, this may not be the case.

Option 2
Transfer long term position(investments) to another platform - with no inactivity fees.
Schwab is one option which is good for us markets however, cant hold any asx shares in it.
Any other options? Big 4 banks platforms charge an insane amount of commissions so probably an alternative to that maybe better, which gives access to US markets.

Keep my company account with IBKR and move to a small business structure there.

Will help keep investments and trading separate.

Any inputs?



Hi peter2,

Thanks for your reply.

Yes, have registered a company and understand that any capital that I give to the pty ltd will have to be covered using a loan agreement.
Also understand annual auditing and tax filing as requirements as well.

Can you recommend someone reasonable?
Have already set up a company - ABN, TFN sorted
Bank account -sorted
Can probably write a loan agreement as well - will read more on this further.

 

[qldfrog]

Hi bellenuit,
Thanks for your reply. Much clear now, thanks.

What would be the most cost effective way of keeping trading account and investing account seperate?

Option 1
With IBKR presently, one way is to use their Family office account structure.
Master account which manages 1 individual account & 1 company account, but will have to pay at least 120x2 inactivity fees.
For my trading, I am sure this will be offset by the commissions I will generate, however for the investing part, this may not be the case.

Option 2
Transfer long term position(investments) to another platform - with no inactivity fees.
Schwab is one option which is good for us markets however, cant hold any asx shares in it.
Any other options? Big 4 banks platforms charge an insane amount of commissions so probably an alternative to that maybe better, which gives access to US markets.

Keep my company account with IBKR and move to a small business structure there.

Will help keep investments and trading separate.

Any inputs?



Hi peter2,

Thanks for your reply.

Yes, have registered a company and understand that any capital that I give to the pty ltd will have to be covered using a loan agreement.
Also understand annual auditing and tax filing as requirements as well.

Can you recommend someone reasonable?
Have already set up a company - ABN, TFN sorted
Bank account -sorted
Can probably write a loan agreement as well - will read more on this further.

you know you can also trade as a business.may not be good if you have other income but that is an option to at least get GST on brokerage etc

 

[inpursuitofhappiness]

you know you can also trade as a business.may not be good if you have other income but that is an option to at least get GST on brokerage etc

Hi qldfrog,

Yes, understand that I can trade as a business however issue with that is proving it to the ATO that I am a trader & investor at the same time in the same financial year. (In case I make sale purchases on my long term holds as well)
And I guess going through the ATO community posts, this has been unsuccessfully tried before by several people in the past. To avoid mess & confusion during EOFY along with backwards & forwards from the ATO I went this way.

Clear advantages of a pty ltd that seem to me are:

- Claim back all expenses occurred while making this profit such as – Rent/mortgage part(office rent), electricity, internet, computers/equipment, subscription to journals, brokerage costs and annual charges.
- Can keep the profits in the company itself which can keep rolling only being taxed at 27.5%. Power of compounding, as I dont intend to withdraw them till the time I am in dire need.
- Once the portfolio grows that may help me further to strengthen my position to take loans/debt as this would become an asset in the eyes of the lender

 

[Sharkman]

i have a similar sort of setup, though in my case the company is the sole trustee of a trust, and the stocks are held under the trust ie. <company name> as trustee for <trust name>, instead of directly under the company.

i run both a short term trading portfolio and a (much larger) buy & hold portfolio. the trading portfolio (mostly just selling covered calls and cash covered puts these days) is in IB, and i agree they are an excellent broker for a frequent trading style.

but in my view IB would be a bad choice for long term buy & hold portfolio. i use a regular CHESS broker for that. not so much for avoiding the IB minimum activity fee (which i don't pay anyway as it gets waived once you reach a certain size) but for the extra security CHESS sponsorship offers over nominee accounts. the extra brokerage compared to IB is chicken feed for stuff that you'll be buying once and holding for years.

but above all else, whatever you do, take note of peter2's suggestion and get an accountant to set it all up. everyone's situation is different, what works for me, or anyone else who replies, may not work for you. yes it'll probably set you back a grand or two, but creating the wrong structure will cost you a lot more than that over the long run. whereas you'll recoup that initial cost many times over in tax savings if you get it done right.

 

[investtrader]

Don't have to get an audit of a private company