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.
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
1. Separate legal entity
2. Limited Liability
3. Constant 30% tax rate
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
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 =
$3,000 Tax Payable
Less CGT discount method @ 50% -$
$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:
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.