Hi everyone, I’m going to start a small business and wanted to know how most people would pay themselves. It’s a company (pty ltd) with one person working on it (just me), who won't be paid o start..
Let’s say the first fin year it makes 10k, second is 40k and third/going forward it’s 100k/year. How do you pay yourself in first vs other years - do you “pay” the first year as a dividend because you can’t pay yourself a wage, then it’s a wage, etc? Thank you very much.
Step 2. Dont ask ozb, there is a reason there are professionals.
According to Gerry Harvey, we are professionals.
Pay yourself a wage, as an employee. A lot of small startups never factor a stable wage for themselves into the figures calculations and only pay themselves as income permits. Unless this is a side operation for you and you have other sources of income? But yeah talk to an accountant or a successful business person that you know.
Thank you. Not sure if wage works on a patchy 10k in the first year, but in future it should. Would be good to figure that part out. I'll go to accountant for sure.
It would be cheaper to pay it all to yourself because then instead of paying business tax rates which are flat, you can pay no tax because you'll be under the tax free threshold (unless you have another job as well).
Never done that but here is idea: business profit that you took as income will be a 'dividend' (pretty much just taking it out from your retained profit account) and in your personal tax return you only pay tax for that income on the difference between your tax rate vs company tax.
Interesting. So there's nothing special to do when giving yourself a dividend? You just pull money out from business account into personal and pay tax as you've suggested?
don't need to pay yourself super if you pay with dividend
Interesting article about potential pitfall of labor's franking policy …
https://www.brisbanetimes.com.au/national/queensland/small-b…
Yes, I guess this could all change if Labor get in and they go ahead with their promises.
Paying through fully franked dividends is a way to avoid double taxation. No super and may be harder to get personal credit later on compared to drawing a salary.
there's no double taxation when drawing salary either
Sales - Expenses = Salary
Can you change your salary month by month?
Yep
Scenario 1:
Sell more stuff, Spend less money = Increase Salary
Scenario 2:
Sell less stuff, Spend more money = Decrease Salary
Scenario 3:
Sell no stuff, Spend more money = Bankruptcy
Thanks!
@rickyb: Just remember you will be taxed on every cent you pull out as salary. If you need money to run the business it is better to leave it in. Better to work with an accountant to work out what expenses you have that can be paid for by the business, only take out what you need.
Mr Newbie, why did you choose ozbargain for business critical advice?
Free advice as a true OzBargainer..?
But OP, definitely speak to an accountant, or at least go to one of the free business sessions set up by your local council (there's a few free seminars run by my council for new businesses).
Thanks Chewie
So? Can you answer why?
It depends if it will be your sole income?
Not sure with P/L scenario - I run a small sole trader business. Basically I pay myself (owner/shareholder drawings) about 70% of what I earn each week, less usual weekly/annual expenses (fuel, rego etc.) keeping the remainder in the kitty for BAS quarters (10%) and PAYG tax (20%). Besides doing my own BAS quarters, I let the accountant work out all the nitty gritty stuff after June 30 each year.
This is not advice tailored to you and is just my general thoughts on the topic.
You are better off creating a loan between your company and yourself.
NOTE: all this is subject to change depending on franking credit policies which are likely to change if the gov't changes.
My personal advice to you, is get an accountant. Have someone review your situation every 3 months or at the very least at the end of each year. They will know how to structure your wages/dividends to suit your situation and to minimise tax. Accounting fees are deductible in the financial year they are paid.
Let me know if you have any questions, I haven't been on here that often but I will try to log back in and have a peek.
Cheers :)
Step 1. Get an accountant who will tell you the best way to structure it all.
Step 2. Dont ask ozb, there is a reason there are professionals.