What is a Company?
A company is a separate legal entity and is administered by its directors. It is formed by the people and/or organisations that own its shares. The liability of a company, in the event of any financial claims against it, is limited to the value of the total assets of the company. That is, there can be no claim against anyone other than the company itself, unless the directors can be shown to have been negligent or fraudulent in their roles in administering the affairs of the company.
Advantages
- Limited liability.
- Corporate tax rate is lower than the top individual marginal rate.
- Some flexibility in the distribution of income (with some restrictions in the case of personal services income).
- No workers compensation insurance on director's fees or dividends.
- Imputation credits can be passed on to shareholders
- Superannuation contributions are deductible up to age base limits
- Retaining earnings in the company effectively limits the tax rate to 30%.
Disadvantages
- Cost of establishing and maintaining is higher.
- Directors are potentially liable in the case of negligence or insolvent trading.
- Compulsory Workcover insurance is payable on wages drawn by directors/shareholders.
- Superannuation contributions are required on wages paid to directors/shareholders.
- Losses cannot be distributed to shareholders.
- More compliance issues.
- Capital gains are not concessionally taxed.
Compliance Requirements
- ABN registration (if applicable).
- Tax File Number application.
- GST registration (if applicable).
- BAS - monthly or quarterly (if registered for GST).
- Tax Return - yearly
- Financial records - financial accounts, balance sheet and profit and loss.
- ASIC annual return required yearly together with a fee.
General Comments
This structure is popular for people running a business where there is a requirement for asset protection and tax minimisation. Public liability insurance is recommended. The tax rate is 30% which is lower than the top individual marginal rate of 47% (plus 1.5% Medicare levy).
|
