Owning a company comes with its own set of rules to get money out, once it starts making a profit. It is essential to have a plan on how to pay yourself to avoid the Problem with leaving profits in your company. Not having a plan can also lead to surprise tax bills (and not in a good way). Here are five ways to pay yourself from your company.

After navigating your way through our FAQ: What is personal services income and do I earn any? blog the next step is to determine if your business is a personal services business (or a PSB). The good news is the restrictions around a PSB are not as tight as personal services income (PSI). But first, what is a PSB?

I have lost count of the times someone has set themselves up with a company or trust, as a contractor or as an individual, only to be bitterly disappointed when I tell them that all of the benefits of having a company or trust don’t apply to them. The tax act is full of exceptions and conditions, and the rules around personal services income and personal services businesses are just two of them.

One of the really attractive things about companies is that profits are taxed at 26% if they meet certain conditions (if the company is trading and aggregated earnings are less than $50m per year they will qualify). It gets better still on 1 July 2021 where the rate drops to 25%. That’s a massive 22% saving in tax (and Medicare Levy) if you are in the highest marginal tax bracket. Once you earn more than $45,000 a year, where the marginal tax rate changes to 32.5%, there’s a real incentive to keep your money tucked up in your company so you don’t lose a big chunk to the taxman.

There is a degree of flexibility around how payments out of a company are made when you are the one responsible for making the decisions (ie the director). Three common forms of payments from a company are dividends, bonuses and directors’ fees. But first, what's the difference between them?

Both companies and trusts have attractive features when it comes to asset protection, wealth creation and managing taxes. Which type of entity you choose to trade your business through will depend on your vision for your business, your appetite for risk and your long term wealth creation goals. For some people a simple company or discretionary trust will suffice, however where your business plans and wealth creation plans are more ambitious it would be great to be able to combine the benefits of both companies and trust. I am going to use Liam and Adele as a case study to demonstrate how we helped a client achieve just this. But first, let’s revisit what makes companies and trusts individually so appealing.

I’m not usually a fan of making loans from companies. The most frequent use of them is purely reactionary, to delay paying tax. These loans often arise when a shareholder or one of their associates pays for personal expenses or simply withdraws cash from the company bank account without processing these transactions through payroll (and therefore paying PAYG withholding and super). If left unchecked, what usually results is a large sum of money being owed to the company at the end of the financial year. The ATO requires the loan to be repaid in full at the time the company’s tax return is lodged or a complying loan agreement is put in place otherwise they will deem an unfranked dividend. The unfranked dividend most often results in the shareholder (or associate) with a large and unexpected tax bill.

As with any industry, we get our fair share of questions. With so many other areas of business being easy to manage yourself, accounting tends to look quite daunting. Our best advice for new entrepreneurs who want to get started with a solid foundation is to work with your accountant. You don’t need to figure it out by trial and error on your own, this can lead to some expensive learning curves! Your accountant is there to work alongside you so that you understand your business’s finances and feel empowered to make the right decisions. Here are some of the most common questions we are asked.

Crawling towards the finish line at the end of 2020, I was working 4.5 days a week but mostly 4, indulging in a little self care on a Friday. The year 2020, certainly took a heavy emotional toll. Now that we are well into the start of 2021 I am finding that my energy levels are still quite low and I am finding it difficult to get back into the rhythm of actively seeking to grow my business, keeping on the bad habits of 2020. I have the words of a former business partner ringing in my ears, “businesses aren’t built nine to five Monday to Friday” and feel that I need a little push along to get my mojo back. In a lot of respects I know what I need to do, but I need to remove the block that is stopping me from doing it. It is time for me to pick up my all time favourite business book again, David Maister’s Strategy and the Fat Smoker.

In short, yes, you can set up your own company…BUT doing a Google search and asking around in a few Facebook groups is not going to equip you with everything you need to know to set your company up right. Having started a business from scratch myself I appreciate that every dollar spent is precious and that you do what you can yourself to save money. DIY’ing your company set up is not something that I would recommend. Not knowing what you don’t know can be very costly and here is why.

As part of the Government’s Covid-19 economy stimulus package, the Government increased the instant asset write-off thresholds for depreciating assets to $150,000 for some businesses, and from 6 October 2020 until 30 June 2022, certain businesses are also entitled to the temporary full expensing of depreciating assets. This has encouraged more businesses to make an investment in cars and other motor vehicles.

I don’t think I have ever met anyone who loves getting things ready for tax time. Even I don’t like getting my own things in order! I find getting a system in place and staying organised is the best way to tackle tax time. It also has the added bonus of being able to use the data you have to gather for tax to more effectively make decisions in your business, so it is a win win. Here are my tips for getting up to date and staying up to date:

We all make mistakes - the small, itty bitty ones have no real impact on our lives but other mistakes can be life changing. With many businesses still reeling from COVID, there are mistakes people made in the past 12 months that will continue to have a ripple effect long past the pandemic. If you want to avoid these mistakes and how to recognise you are making them, read on.

Whether business was good or bad in 2020, I think it is fair to say that all businesses faced more challenges last year than in any other year. As we start 2021 much of the uncertainty that we faced in 2020 still exists. Many state borders are still closed, borders that are open can snap shut at any time and global cases of COVID-19 continue to increase. A vaccine is on the horizon for delivery in Australia however it is going to take time for it to be rolled out and benefits to our daily lives seen. As we start 2021 with so much uncertainty what can we do differently?

Xero is much more than a piece of software your bookkeeper and accountant use to magically produce financial statements, tax returns and BAS. Many business owners see this powerful software as a glorified bookkeeper. Here is a deeper look at some of the cool features in Xero that will change the way you run your business.

Leaving your job to start your own business can be scary when you no longer have the security of a regular income to support household expenses. Making sales, turning a profit and getting cash in the door fast are now your top priorities. It may come as a shock to those just starting out in business that you don’t start earning the same income from day one that you did when employed. It does take time to build a business. There’s a reason only 20% of businesses make it to 5 years – the owner doesn’t have enough cash left over for them to live off! You need to go from start-up to revved up fast, if being in business long term is your goal. I started my own business a few years ago and have learnt a few things along the way.

Our case study about how Adrienne used the principles of Mike Michalowicz’s book, Profit First, really showed how cashflow is king. By following the recommendations of the book, Adrienne transformed her cashflow and made it through COVID. If you are wondering how to improve yours and not quite sure you have the time to read the book, here is my review of Profit First. The essence of the book comes down to 4 profit-management principles…

The number one question we get asked is “what business costs are tax deductible?” The simple answer is – money spent on costs to run your business, that are not capital (for example, land buildings, plant and equipment) or personal are tax deductible. But it is not that simple. Australia has over 6,000 pages of tax legislation! Here, in 2,000 words is our very brief summary of tax deductible business expenses.

Adrienne owns a small architecture firm and spent the 2018-19 Christmas break reading Mike Michalowicz’s book, Profit First. She was so excited by the read and wanted to implement it in her business straight away. I was a little sceptical as being an accountant I know that being in business is about cashflow first. Curious, I decided to have a read. I wasn’t long into the book before I realised it’s about a methodology to manage cashflow. I settled in and enjoyed the read.

2020 is a year like no other. We’ve witnessed change at a rate and on a scale never seen before, making it challenging for businesses to keep up. When it comes to making decisions in business, it’s important to use only up to date advice, as the regulatory environment and personal circumstances can change to such an extent that initial advice can be considered bad advice. I want to share with you a case study to show why it is vital to keep up to date: