Can i “pay myself” for reno’s?

I,m not sure I get the gist of this post.
If you were to pay yourself for work on your own property it would be a wage.Which would attract a tax.So why bother when you are taxed at the end when you sell.?You are not going to pay a different rate.
Russ.

We don’t have a Legal & Accounting forum for nothing!
http://propertyinvesting.com/forum/forum.asp?FORUM_ID=23

Most people use comapnies so they never have to go over the 30% tax rate on income (so they become an employee to their comany until they reach the 30% tax threshold), then they take the rest out as basically dividends. So that way they go for 0% to 17% to 30%.

But the real value of companies is how they are treated in terms of expenses:
Indvidual: Earn->Tax->Spend
Comapny: Earn->Spend->Tax

An employee is taxed before they spend a dime of their own money (automatic payroll deduction), but a company can spend as much as it wants (on business expenses) and then is taxed on what is left over. Now in the course of the business you have to do certain things to make money. Such as fill the car up with petrol, buy a new computer, pay mobile, internet and phone bills (so PM/tenants can contact you), subscription to magazines, buy newspapers and books (furthering your education), buying corporate gifts, taking other investors outto lunch, etc. As you can imagine, your expenses could get quite high and that is where you make the biggest savings of your tax. In fact some people deduct everything they can, so in the end they pay 0% in tax.

Robert Kiyosaki’s books go into this very point.

O’h and before I forget – Big Legal Jargon goes here… This is my opinon only and as such, etc, etc.

Rgds.
Lucifer_au

Don’t Australian shareholder employees pay provisional tax exactly the same as individual sole traders do?

A Sole Trader can claim the same expenses as a company as far as I know.

Companies have many advantages but do have higher compliance costs than sole traders. A sole trader in a parallel business with a company will make a slightly higher before tax profit because of this.

Operating under a company makes no difference to whether a client lunch is tax deductible or not[blink]

If you are paying tax, smile – You made a profit – If you are paying heaps of tax, smile harder, you made a BIG profit[thumbsupanim]

>”Don’t Australian shareholder employees pay provisional tax exactly the same as individual sole traders do?”

Perhaps (I’m not sure what your question is though…???). But anyway, a company will NEVER, EVER pay more than 30% tax rate (and thats after all tax deductible expenses and after paying out employees (i.e. you) up to $20K per employee@ 17% tax rate). A sole trader though could (and do) pay up to 48.5% in tax.

Heres what happens to privately held company in regards to taxation, you and your family (were applicable) become employees of your company: Earn-> Turn all your personal expense into company expense -> Pay each employee $6K (0% tax rate) -> Pay each employee $20K 1(7% tax rate) -> Pay shareholders 30% dividend (no tax payable, as the company has paid it).
Of course you might ‘run out of money’ (on paper) before you can pay all your employs $6K so , then you pay 0% tax, or say one family member gets up to $20K (the rest are on $6K paying no tax). Well then you pay 17% tax on the $20,000, which means your yearly tax bill will be $3,400 for your hole family.

>”A Sole Trader can claim the same expenses as a company as far as I know.”

They can claim some expenses, but they are limited in a number of areas, also sole traders operate under unlimited liability, so if you get sued all your assets are inc. in a court case (so family home, etc). Under a company structure you and the companies assets are separated, so if you are sued you don’t lose your assets.

Another point is that if you have two cars, both can go into the company (and be depreciated), but if you are a sole trader the ATO will only give you a tax break for one. Also you might have 2 kids, so all your mobile phones (4) go onto the company, while if you are a sole trader you can only claim one. Did you know as a company you can expense meals for your employees at your office? With a sole trader you cannot.

>”Companies have many advantages but do have higher compliance costs than sole traders. A sole trader in a parallel business with a company will make a slightly higher before tax profit because of this.”

$800 to start up, $200 to run per yr. Of course you can deduct it all off your tax.

>”Operating under a company makes no difference to whether a client lunch is tax deductible or not”

As I said you can claim for so much more than a sole employee – for example say I am the chief salesman of my company, they decide gave me a free trip for reaching my bonuses (100% deduction for the whole trip – Everything!!!). You could say because a family member does our books you have to send her to Hawaii to attend an international conference on taxation… Again 100% tax write off. And that holiday was taken with PRE-Tax dollars. So you earn it then you spend it, while an employee has to earn->tax->holiday. I know which I would rather.

>”If you are paying tax, smile – You made a profit – If you are paying heaps of tax, smile harder, you made a BIG profit”

If you are paying more than 30% tax, you are a moron. Look tax is your biggest expense, and on average the gov. takes from everyone (everyone!) approx. 50% of their income (it doesn’t matter wether you are on the top pay scale or the lowest, they make it up with GST, junk taxes, etc).

So the Gov. takes 50% of your income, tell me how hard is it to invest after the gov. has taken it’s 50% out?? It basically haves the money you have for investing. Thats why it is so hard for young people to get into housing… Because the gov. takes their cut first and then these people have to live on the rest (which is 50% of their income), and so cannot save for a deposit. So why do you want to pay 50% of your income to the government??? What – so they can keep on some extra public servants who haven’t actually done any work (they sat in an empty office!) for 9yrs!!! And people wonder why I hate paying tax… (well I don’t pay that much, but I still hate paying a $1 more than I have too).

In a famous tax battle a judge remarked, “You are not required to pay $1 more tax, than you are legally required to”. I take that motto to heart.

Rgds.
Lucifer_au

Umm the answer is yes you can Henry (simply form a company)…

Of course you don’t actually pay yourself a ‘full’ salary (say $45K), rather you turn you personal expenses into company exepenses, and then pay yourself the left over amount. You of course want to keep as much money in the company (unless you want to buy an PPOR, etc), rather than paying yourself a high salary/income.

Rgds.
Lucifer_au

Okay look at it this way – I buy a newspaper for reading the latest news. If I am a employee and I buy it, I do not get to claim it (unless I’m a jurno), however if I own a business, my business does get to claim it, as it is providing me with information that is needed to run my business.

Lets say I own two cars. Now as an individual I can’t claim my car off tax (unless I’m a delivery driver/courier, and if I was I could only claim one vehicle), however if I own a company, the company needs two cars (and so the company claims them). If one was a luxury car, well that’s for directors (me!) and if one was a station wagon well that’s for moving goods, so a total tax deduction.

If say I rent a house, well I of course can’t claim any off the rent of my house. However if I am a business I could easily claim an office (spare bedroom), lounge area (entertaining clients and having meetings) and kitchen/bthroom (employee eatery and restroom).

Computers are another one (you can’t claim them, but your company can). Even personal stereos you can claim (listening to audio programs), as education services and courses. It isn’t hard to figure out how an item could be deducted. Of course you should always try and make a cash profit (oterwise whats the point!), but when it comes to tax, try and turn all those things into legitimate business expenses.

Rgds.
Lucifer_au

I can buy insurance to cover my liability.

Not if you are sued personally – or perhaps you could tell us how high your premiums are, because it would be huge!! (think of the guy who sued this drunk guy in a pub who won a meat raffel and then walked round the pub wearing the meat on his feet, the guy who sued slipped and the drunk meaty guy lost his new car and had to re-mortgage his house!). So the first point is limited liability (also insurance companines do not cover you if they think it’s your fault).

The other thing when yourn a sole trader is that you have to specify why you bought each car. So for example if you bought a ferrari and if the ATO audited you you would have to prove that you used that car only for business. And if they found out you had taken the ferrari with you to the beach, you would have to work out what % was personal use, and what % was business use. With a company it dosen’t matter – the company owns the car, if you take it to the beach you might be looking at RE or having a directors meeting. And I might mention as a sole trader you can’t claim meals unless you go out with a client).

This has more implications – sole trader you would have to pay a % of the car insurance because of personal use with AFTER tax dollars. The company 100% wite off with PRE tax dollars.
Also you might have to pay 15% FBT.

From my standpoint though I would be seriously, seriously worried about unlimited liability.

Please Note: There are other entities you can use to get the same or similar result. This incs. trusts (many different types) and limited partnerships as well as companies. All I’m doing is showing you the benefits of one type of entity (companies – Pty. Ltd.) as well as the very large negatives of having no entities (i.e. Asset protection!).

Rgds.
Lucifer_au