All Topics / Legal & Accounting / where can I find info on Ltd companies

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  • Profile photo of mel_d01mel_d01
    Member
    @mel_d01
    Join Date: 2008
    Post Count: 26

    Ok,

    My understanding of all this tax stuff is limited and I def plan to see an accountant in the next couple of months. Firstly I need info to read, so I can confidently ask questions to the accountant.

    THE SENARIO:

    My partner is a carpenter who will be doing a builders course to become reg as builder. His exp earnings approx at the moment are $120k pa gross (non incl deductions ect), currently he has a business name and GST registered.

    My wage is 50k

     

    My partner has mentioned that setting up a ltd company this would reduce the amount of tax he would pay? Plus I would quit my job and also become director to company as well. Is this going to save us tax?

     

    We plan to buy a house (early09) a subdivide able block, build 2 homes, we are first time homebuyers so free stamp duty (WA). Live in one and sell the other (–or rent out if selling doesn’t suit the market.) would this be best then for us to buy the block in our names and become clients to ltd company. Or would it be better for company to purchase the block and sell to us-hence we wouldn’t pay stamp duty as new home buyers and then the company could sell the other house at 30% CGT. Is this right?

    If renting out would a company still have tax benefits such as capital depreciation on the house?

     

    Or if someone knows of a good book that briefly explains more on limited companies. I found the ATO website not that user friendly…

     

    Thanks for reading,

    Cheers meld

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Hi Meld

    The advantage with a company is that it is a separate legal entity, so that if the business is sued, it is the company that goes down – not the shareholders or directors (unless acting illegally).

    Another advantage is that it is a separate entity for tax purposes. The company can retain profits and be taxed at 30% max, and/or it can pay wages to directors, or employees, or contractors. Profits can also be distributed as dividends.

    So what this all means is that you can pay yourself and your husband equal amounts up to the point where you would pay more than 30% tax. Instead of having one person earning more and paying a higher tax percentage it will work out cheaper if split evenly. You can also work out how much you have to earn before you are paying 31%+ tax – then it is best to leave it in the company, maybe.

    If you are setting up your own company it is best to have only one director. This is for risk reasons. If the company folds, it is the director that takes the heat – which may be an adverse credit report or maybe being sued for something they did which was in breach of some unknown law.

    Have one person as the fall guy and the other person as the asset holder. If the  guy is sued it is best if they have no assets. The family law court will still be able to divide things fairly – it doesn't matter whose name.

    Also consider having the shares of the company owned by a family trust – maybe with the -risk person acting as trustee. This will help in the future with tax minimisation as well as protection from creditors in the unlikely event that the non-risk person is sued.

    I don't think that there are any books which explain this sort of thing in easily understood terms. Probably look at some websites such as accountant/law firms. one good one is http://www.lawcentral.com.au and http://www.taxlawyer.com.au . The best book on trusts for the lay person is Dale Gatherum Goss' Trust Magic.

    BTW, many if not most accountants do not have an understanding of trusts and often company law and taxation. It maybe a good idea to ask at least 2 for their opinion and do some research yourself.

    I am not sure if it would be a good idea to buy in your company name as your company would have to pay stamp duty and CGT on any profit, even if transfered to yourselves.

    It is probably best to buy in your own name(s) for the first one and then form a discretionary trust for subsequent ones. A trading company should never buy assets as these will be at risk if the company gets into trouble.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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