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Company Incorporation/Formation

A Company is a distinct separate legal entity with its own income tax liability. The Australian Securities and Investments Commission (ASIC) regulate companies

Current requirements include:

1. One Director minimum
2. One Shareholder minimum
3. Company Secretary
4. Public Officer for ATO purposes
5. Registered Office

You become an employee of the company as would any other employee, hence you become subject to all of the employer/employee requirements.

This means:

1. PAYG Tax to be deducted (group tax)
2. Workcare premiums to be paid
3. Superannuation Guarantee Levy to be paid
4. L.S.L. Entitlement for Director/s etc

Possible Advantages:

1. Separate legal entity
2. Limited Liability
3. Constant 30% tax rate

Possible Disadvantages:

1. Increase in paperwork requirements
2. Increase in Accounting/Admin expenses
3. Unable to claim Capital Gains Tax discounts
4. Private expenditure (Drawings) cannot be taken from the Company. Personal expenses met by the company on your behalf may incur Fringe Benefits Tax (FBT) payable based on those amounts.

One advantage of forming a company is the aspect of Limited Liability for shareholders; whereby the liability of shareholders is usually limited to their shareholding amounts. However, a director has substantial and stringent legal duties to make sure that the company can meet its obligations at all times, and in certain circumstances, may be liable for certain debts of the company.

The above requirements lead to a premium amount of paperwork; therefore accounting and administration costs would increase.

An Annual Companies Office Return must be lodged and the review fee (currently $212) paid every year, plus accounting costs to cover directors reports, statutory documents etc.

Any profits remaining after paying wages etc. are taxed at the rate of 30%. However, any money drawn out of the company as wages or dividends will be subject to the individuals personal tax rate.

Dividends are paid to shareholders out of profits that have already been taxed normally carry a franking credit of 30% that may be claimed on the individuals personal income tax return.

The decision to set up a company is a complex one and depends on individual needs, ie. Taxation benefits, asset protection, liability protection, anonymity etc.

It is not generally advised for clients to accumulate assets that increase in value over time within a company structure. If the company owned an asset, the whole of the capital gain from the sale of the asset would be taxed at the company rate, where as if the asset was owned privately you may be eligible for the 50% general exemption.

For example, say we had a $10,000 capital gain made on the sale of a simple asset, the tax implications would be:


$10,000 @ 30% company tax rate =        $3,000 Tax Payable


Capital Gain                                                  $10,000
Less CGT discount method @ 50%         -$ 5,000
Assessable Gain                                           $ 5,000

Tax Due
$5,000 @ 45% highest             tax rate = $ 2,250
$5,000 @ 1.5% medicare levy                
    = $ 75
                                                           $ 2,325 Tax Payable

Other matters need to be considered would include:

Registrations required

a. Workcover
b. GST
c. PAYG withholding
d. Superannuation Guarantee
e. Business Name Registration
f. Trade Mark Registration etc

The decision to incorporate your business into a company structure is a very important step and must be attended to with the utmost care. You must fully discuss the implications of this measure fully with our accounting staff prior to undertaking this or any other structure.

Important: This is not advice. Clients should not act solely on the basis of the material in this Bulletin. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The bulletin is issued as a helpful guide only.

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Last modified:   11/05/2018