Trading as a 'Business'

[Kruegs]

Hi there,

I have been contemplating forming a 'business' for the conduct of my personal trading activities. I have recently developed a structured approach to my trading using Trend-Analysis combined with Options.
I guess my main motivation is to provide some increased structure and discipline to my trading activities, and I thought establishing it as a 'business' would help foster this approach. Within 2 years, my goal is to wind back full time work and focus on trading as a source of income.

My question is whether anybody has formed their trading 'as a business'. I have read the ATO fact sheet on this, and my approach seems legitimate. Any benefits or problems I should be aware of? Did people establish a sole-trader structure, or a private company?

Interested to hear anybody's advice on forming trading as a business.

Cheers,
Mark Krueger

 

[GreatPig]

As far as the ATO is concerned, I believe it's the intention that's important, but that needs to be supported by evidence. I gather that includes things like operating it in a business-like manner with a plan and objectives, having sufficient trading capital, being able to show you understand what you're doing (through courses and other studies and reading), having a reasonable trading volume, etc.

As for structure, it really depends on your circumstances. Personally I have a company because it allows me to retain profits at the 30% tax rate, but with the way personal tax rates are falling and look like falling further, that advantage is likely to disappear soon. Already you need to be on pretty high income yourself to be paying an average of 30% tax (around $129K pa I think). You can also consider a trust structure. The limited liability benefits of a company are rather irrelevant if all it's doing is share trading.

Cheers,
GP

 

[adobee]

Talk to an accountant who specialises in shares and business structures etc.. Dependent on you age possible one who also specialises in super.

 

[josh_in_a_box]

I've been cosindering doing this as well myself, but havent really done much research about it. Mind posting up some links such as the factsheet you are refering to?

apart from the 30% tax rate, what are other tax benefits of setting up a company to trade?

J

 

[GreatPig]

Try this.

If you're only trading and not doing any other sort of business, then there's probably not much other benefit at all in a company that I can think of. There are also a number of things to be wary of in relation to use of company funds when you do use a company. It can be a major pain.

GP

 

[nizar]

apart from the 30% tax rate, what are other tax benefits of setting up a company to trade?

I think that's a major benefit, especially when we are talking big money..

 

[Tysonboss1]

Remember if you are planning on holding some blocks of shares longer than 12 months a company does not get the 50% capital gains discount that you would if you held them personally.

yes, a companies tax is limited to 30% but you pay 30% from the very first dollar earned where as personally your income tax goes up in incriments with the first $6000 tax free, so you have to be earning quite alot to benefit.

A company also costs alot to setup and there is an annual fee,...

you'll have to submit your personal tax return as well as the company tax return so accounting fees will be higher.

you'll have to have a company bank account which normally has higher fees than personal accounts.

I guess you just has to examine the reasons you want to trade as a business,

 

[GreatPig]

Currently personal income tax, including Medicare levy, crosses company tax at an income of just over $112K pa (less if the individual also has to pay the Medicare levy surcharge).

Less than that the individual pays less tax, more than that the company pays less tax.

The $129K I mentioned earlier wasn't allowing for the Medicare levy.

GP

 

[nizar]

Currently personal income tax, including Medicare levy, crosses company tax at an income of just over $112K pa (less if the individual also has to pay the Medicare levy surcharge).

Less than that the individual pays less tax, more than that the company pays less tax.

The $129K I mentioned earlier wasn't allowing for the Medicare levy.

GP

Thanks for that GP.
Very useful information.
Saves me having to calculate it myself.

 

[Pager]

I set up my trading as a business earlier this year, everyones situation is different so speaking to an accountant about your situation is a must, but i found the best way for me was as a "Family trust", its a pretty popular way for many proffesional traders.

 

[Tysonboss1]

A family trust can be a good way to spread earnings or losses to different family members that will benefit the most from the extra income or the loss.

But if you have no one to spread the earnings to it is not as much use,... you can put some of the trusts earnings back into a company but again you will be paying 30% tax.

and if you are the trustee of the trust it probally won't offer as much assett protection as other structures,...

you have to find out what your reasons for not wanting to trade under your own name is,... if it is just want to feel like a big fish it's probally not going to benefit you till you are actually a big fish.

I run several companies and I strip all profits from the business each year and only leave in what would be taxed higher than 30% if I took it personally.