I have started working on a Video for the Small Business Restructure, should be up in a couple of months. This allows assets to be transferred from one entity to another without incurring any CGT. That might be helpful. I also plan to do a video showing where dividends can be paid to the relative safety of a Holding Company and won't attract any tax as the tax rate of the Holding company is usually the same as the franking credits. derek
Thanks for this Derek! Question about option 3, is it simply a matter of withdrawing the money any time on JULY 1 and then depositing it in full before June 30 the following year? And then repeat the process once July 1 starts in the new FY? This does not consititue a loan? Option looks alot more enticing as you said because of interest rates for home loans and offset accounts which can hold money without being touched. Thank you in advance.
I probably wouldn't make it as obvious as that. There is a section 109R of the Tax Act that talks about 'repeated' loans to and from a private company and is a general provision that takes the view of a 'reasonable person'. At the end of the day, repaying the loan doesn't solve the issue of getting money OUT of the company, some type of dividend strategy is the way to achieve that. derek
Great explanation Derek, thank you. A question though, if as an example, I pay myself a salary of 80K (taxed at 32.5%), and I then pay myself a dividend of 150K, is my credit still based on 32.5% the level for my 80k salary, or because this dividend makes my total income 230K is the credit calculated on 45%, that the only bit that isn't quite clear - to me at least :) I suspect its the latter?
Its even more complex than that. You add the $150k dividend to you $80k salary PLUS $50,000 franking credits. Your taxable income is then $280k and you calculate the tax on $280k. This means your income has increased by $200k (the dividend is 'grossed up'). The tax on the additional $200k will be; $40k at 32.5%, $60k at 37% and $100k at 45%. (this will change in 2024/25) Total tax on the dividend is $80,200 less the $50,000 franking Credit, leaving $30,200 extra tax to pay. derek
@TwelveAccounting your conclusion is contradicting with “option4” as a “best option” because the tax on 230k (salary + dividends) will be higher than paying tax on the whole 230k as a salary. Am I missing the point here?!
What are your thoughts on using option 3 - to borrow money from my current company to purchase another business with the view of paying back the loan prior to june 30 with profits made from the new business aquisition?
if one company borrows from another company, this doesn't trigger the Division 7A problem. Its totally fine for one company to lend to another company. derek
Thank you this webinar was a great help…
Great video Derek! You should consider writing a book that is made up of all these videos. Food for thought!
Sam
Love your videos! And your cool slide transitions!
Awesome video
Glad you enjoyed it
Can you do a video on associated companies and being able to transfer assets (Inc. cash) between entities in the group?
I have started working on a Video for the Small Business Restructure, should be up in a couple of months. This allows assets to be transferred from one entity to another without incurring any CGT. That might be helpful.
I also plan to do a video showing where dividends can be paid to the relative safety of a Holding Company and won't attract any tax as the tax rate of the Holding company is usually the same as the franking credits.
derek
How will PSI works in the example to giving yourself salary?
Thanks for this Derek!
Question about option 3, is it simply a matter of withdrawing the money any time on JULY 1 and then depositing it in full before June 30 the following year? And then repeat the process once July 1 starts in the new FY? This does not consititue a loan? Option looks alot more enticing as you said because of interest rates for home loans and offset accounts which can hold money without being touched.
Thank you in advance.
I probably wouldn't make it as obvious as that. There is a section 109R of the Tax Act that talks about 'repeated' loans to and from a private company and is a general provision that takes the view of a 'reasonable person'. At the end of the day, repaying the loan doesn't solve the issue of getting money OUT of the company, some type of dividend strategy is the way to achieve that. derek
Great video Derek
Great explanation Derek, thank you.
A question though, if as an example, I pay myself a salary of 80K (taxed at 32.5%), and I then pay myself a dividend of 150K, is my credit still based on 32.5% the level for my 80k salary, or because this dividend makes my total income 230K is the credit calculated on 45%, that the only bit that isn't quite clear - to me at least :) I suspect its the latter?
Its even more complex than that. You add the $150k dividend to you $80k salary PLUS $50,000 franking credits. Your taxable income is then $280k and you calculate the tax on $280k. This means your income has increased by $200k (the dividend is 'grossed up'). The tax on the additional $200k will be; $40k at 32.5%, $60k at 37% and $100k at 45%. (this will change in 2024/25) Total tax on the dividend is $80,200 less the $50,000 franking Credit, leaving $30,200 extra tax to pay. derek
@@TwelveAccounting oh my, thank goodness for people like you :)
@TwelveAccounting your conclusion is contradicting with “option4” as a “best option” because the tax on 230k (salary + dividends) will be higher than paying tax on the whole 230k as a salary. Am I missing the point here?!
What are your thoughts on using option 3 - to borrow money from my current company to purchase another business with the view of paying back the loan prior to june 30 with profits made from the new business aquisition?
if one company borrows from another company, this doesn't trigger the Division 7A problem. Its totally fine for one company to lend to another company. derek