Drawing income from a company and tax implications

(Enthusiast)Enthusiast

12 Apr 2021

Hi everyone

Just wanting some general clarity on starting a company and how the income side of things works along with tax.

*I have an appt on Weds to see an accountant but wanted to out it here also to gain some insight before the appt*

Firstly, If I open a company in my name (I also have a PAYG job part time) and choose not to draw any income from the company for the frist year, how is the tax calculated/charged on the business income (or what the business has made) at the end of the financial year? Also, if I chose not to draw on those funds for a further year do I pay tax on that money a second time when the next end of financial year rolls around again?

Secondly, would this company effect me personally in any way with regard to tax if I wasnt drawing income from it?

Could I employ my husband as either a casual employee or self employed contractor to work for the company so that we could control his income for tax purposes (keep it low)?

Hope this makes sense!

Thanks :-)

Mumoffour

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CaroATO

(Community Support)Community Support

14 Apr 2021

Hi @mumoffour,

Sounds like the start of a great adventure.

When a company lodges its first tax return, it works out its own taxable income and tax payable using a calculation statement that is included in the tax return. Companies are self-assessed.

Well look at the tax return, if the company meets the conditions, we'll put it into the pay as you go instalment, (PAYGI) system. This allows the company to pay an estimated amount of tax each quarter for example, to go towards tax payable when the next tax return is lodged.

In the second year, if you were to pay yourself as a pay as you go withholder, the company would withhold tax on your behalf where appropriate. Each quarter for example you'll send the money to us and complete a business activity statement, (BAS).

The business income will not affect your personal income unless you receive payments from the company.

You can employ your husband; be mindful you'll need to comply with the necessary legislative requirements to ensure he is paid correctly for hours worked as a casual employee. As a contractor he will invoice you accordingly.

Calculation statement

PAYGI

Fair Work Ombudsman

All the best.

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