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How do I withdraw profits from my business?

 

The reason we establish and create a successful business from years of sweat and sleepless night is to improve our quality of life and to build future wealth. So, when your business becomes successful, cash is rolling in, and you have a healthy business bank balance, the next step would be to achieve your desired lifestyle funded by the fruits of your labour.

You will find a lot of advice out there, both expert and non-expert opinions. Even your gardener may add his 2 cents. However, the best advice is that of a professional accountant as we can look at your whole financial data and take into consideration any tax savings.

So, the golden question is, how do I withdraw money from my business under a company or trust structure?

 

Effectively there are three main ways to withdraw money from business:

1. Paying yourself a wage/salary like an employee– The process is exactly similar as you would have been working for someone else or as for your own employees. When you pay yourself wages, you will need to ensure PAYG is deducted at the correct rates and that superannuation is also accounted for.

The most important question to determine here is the annual salary to pay yourself. Here you will need to consider any tax benefits as well as your own personal situation, for example, how much you need to run your household, etc. It is a good idea first to speak with your accountant as they can help determine the best pay rate.

 

2. Dividend/Trust distribution – Depending on the structure, you can either issue a dividend or trust distribution at the end of the year. If you are running your business as:

a. Company- you can issue dividends to the shareholders of the company which is generally the owners of the business. With dividends the advantage is you can attach franking credits (that is the tax already paid by the company), so an income is not taxed twice. Another advantage is there are no super or PAYG requirements; however, the dividend becomes part of your assessable income as an individual.

b. Trust – if the trust makes a profit at the end of the year, generally, we accountants prefer to distribute the profit; otherwise, trusts are taxed at a higher marginal tax rate. Depending on what type of trust you created, the trust deed will decide the beneficiaries who are entitled to the profits. You still need to have a resolution at the end of June to determine the beneficiaries who are entitled to profit distribution. Again, the profit is taxed on the individual marginal rate.

 

3. Loan Repayment– When you initially started your business, you needed funds for working capital to cover the start up cost. Let’s be honest the banks do not favour small businesses with start up loans, so you as a small business owner must act as a bank for your business. When you provide personal funds to cover the business cost, it is treated like a loan. Meaning the business owes you money, and you can recover the money back (loan repayment) once the business can afford to pay back.

A Loan repayment is treated as tax free for both the owner and company/trust. There is a possibility like banks to charge the company/trust interest for lending your personal funds to the business. But then the interest income is taxable to the owner.

 

Whenever you think of implementing the above three strategies, it is wise to speak with your accountant. And if you don’t have one, we are available to explain all tax and accounting matters in simple English.

 

 

Written By
Arpana Patel
Tax Accountant

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Does my business need to register for GST?

This is one of the multitude of questions you need to consider and answer when starting up and registering a new small business.  Knowing your obligations and ensuring that you are compliant can be daunting so below is a brief overview.

Disclaimer: below is only meant for general information.  Please feel free to contact us for advice and guidance on your specific circumstances.

 

What is GST?

GST stands for ‘goods and services tax’, which simply put is a 10% tax on most goods and services sold in Australia.

There are a few goods and services deemed by the ATO to be ‘GST free’.  A comprehensive list can be found on the ATO website.

 

Do I need to register and when?

There are 2 circumstances where you are required to register for GST:

  • Threshold: > $75,000 turnover/gross income

You must register for GST if your turnover or gross income in a tax year exceeds $75,000.  You need to register within 21 days of reaching the threshold.  Once registered, you must include the GST portion on all your sales invoices.

  • Rideshare & Taxi Drivers

Any drivers that provide travel for passengers, for example taxi, uber, ola, didi must register for GST regardless of their turnover/gross income.

If you do not meet the above criteria, you can still voluntarily register for GST.  There are several circumstances where this can be beneficial for your business.

If you don’t register for GST and are required to then you may still have to pay the GST portion on any income earned from the date you were required to registered.  This will apply whether or not you included GST in your prices or not.  The ATO may also impose other penalties or interest.

 

Accounting for GST

Once you are registered, you must start to charge your customers the 10% GST.  Things to keep mind when doing this:

  • Label your invoice “Tax Invoice”
  • ABN and your details
  • Brief description of the items sold/service provided
  • Include the GST as a separate line or note that the final figure “includes GST”

You can also claim GST credits for any GST paid by you to other GST registered businesses.  Not all purchases/expenses will have GST so check your receipts and invoices.

ATO Obligations:

You report all GST collected and any GST credits to the ATO via a BAS (Business Activity Statement).  This is prepared and lodged monthly, quarterly, or annually.  The frequency of your BAS returns is determined when you initially register for GST.

Your BAS also needs to be lodged in time to avoid any penalties.

Please feel free to get in touch with us if we can help you with determining if you need to register, walk you through the process, help you in recording the GST on all sales and expenses and prepare/lodge your BAS returns.

Heena Kalyan (Senior Bookkeeper)

AveSol Accounting Tax

www.avesoltax.com.au

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Which bookkeeping software is right for you?

We live in a highly digitised world with ever changing technology.  The way you keep track of your accounts has also changed dramatically over the years.  Therefore, it has become very important to equip ourselves with the right technology that not only assists with compliance but also helps analyse our business data. It is a long-term investment that can support the growth of your business.

So, how to decide which bookkeeping software is right for me and my business? Come step into the world of digital accounting software and let me show you.

  • Purpose – the main factor in deciding the best bookkeeping software is understanding the purpose of having one. Apart from doing the mundane tasks of recording sales and expenses, what else do you need? Do you need to track inventory, analyse different cost centres, payroll management/timesheets or a comprehensive reporting tool?  Do you want only one software that efficiently keeps all your information in one database? Once you understand what you want the software to do for you, it would be easy to decide what features you need.

 

  • Cost – let’s be honest, as a small business owner we are always trying to minimise cost when starting out. However, the cost shouldn’t be the only deciding factor when choosing the right bookkeeping software. There are a lot of bookkeeping software in the market like MYOB, Xero and Quick books that can be catered according to your needs for example you can start with a basic system and then upgrade or add on features as your business grows. The critical thing to understand here is that your costs need to outweigh the benefits you receive and have room to expand on your software as and when your business grows.

 

  • User friendly/features– well in my opinion if you cannot use it properly then you lose the whole purpose of owning it. A bookkeeping software should have an easy-to-use functionality and have an interface that is easy to flow from one function to another. For example, most bookkeeping software have inbuilt bank feeds where all your bank statements are automatically transferred into your software saving you time, paper and reducing potential errors. Some software like XERO enables you add on products that integrates with third party software such as Stripe. Therefore, it is important to test drive and get the feel for it before committing to purchase. Most software provides free 30-day trial option so keep an eye out.

 

  • Mobility of software– do you want a cloud base software that you can access it from anywhere and anytime? Do you want the software to travel with you in your pocket and you can see real time data on the go? Are you a person, who wants the function to close the sale and prepare an invoice on the spot while standing in front of the customer via your phone? Do you want to capture all your expense receipts on the go with your phone and upload it automatically into the software before you forget it or lose it? Think of how you would like to use the software and what features would make your life easier.

 

  • Compliance – The ATO consistently puts pressure on businesses to have compliant software. In the unlikely case of an audit, your accounting software can attach an electronic copy of all invoices/receipts/supporting documents to the relevant transaction eliminating the need for any hardcopy folders and making it very easy for anyone, internal or external to the business, to review and audit. Your software also needs to be compliant for BAS, STP and Superannuation.  Some accountants are also very particular which software they would work with and sometimes they prefer the clients to use a software that integrates with they own tax software. So, it is a good idea to involve your accountant in the decision making.

 

So, choosing the right bookkeeping system is very crucial for a successful business, as your data, is your business’s success.

Avenue Accountants is partnered with all major bookkeeping software currently on the market and can assist you with the right choice of software by consulting with you on your current needs and future expected growth of your business.  We are also able to provide training and on-going support.

 

Time and money spent wisely will provide results.

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