Joe Sixpack: Spent $20k setting up a business idea... he registered a Business Name (EVO) and got an ABN (Sole Trader) with GST.

Joe found it really farking hard securing contracts as a Sole Trader, so he decided to incorporate.

Joe has/had a couple of clients and invoices them directly; his invoices have the business name EVO on it.

He gets Business Activity Statements from the ATO to "EVO".

In his last tax return he had $18k worth of losses on EVO, and consequently has a deferred loss. He's invoiced ~$6k this tax year.

Questions:
1.- If he incorporates he will be Director & Secretary with 100% of shares. Can he still invoice as a Sole Trader?

2.- What happens to his now ~ $12k of losses from being a Sole Trader?

3.- Can he be a subcontractor for the new EVO Pty Ltd?
Eg: Telstra has a contract with EVO Pty Ltd. Joe does the work > Telstra payment goes to EVO Pty Ltd > Joe invoices EVO Pty Ltd.

4.- Joe also has ~$10k capital loss from 2004... can he pay himself minimum wage and take the rest in dividends and claw back some of the CG loss he's been carrying around for so many years?

5.- What's the best way to limit tax liabilities in a 1 man Pty Ltd?

Thanks


PS: Joe doesn't want to ask an accountant cos they gave him the wrong advice with the whole Sole Trader BS. He also values Seabreeze poster opinion more than the fee driven bean counters.

talk to a different accountant...

Only way I know reduce tax liability is to use a family trust to distribute profits/dividends from the company to lower tax bracket family members. You can't pay them a wage as such, it has to be from direct profit. You can setup a hybrid trust for less than $1k if you talk to the right people.

As far as I know, you can't get out of tax liability by paying company tax only on profits. Its like shares, the company either pays 30% tax and you get a credit (franked), with the rest to pay in your personal income tax return. Or you pay all the tax on the profits in your ITR (unfranked). Happy to be proven wrong on this!!!

cisco said...
Questions:
1.- If he incorporates he will be Director & Secretary with 100% of shares. Can he still invoice as a Sole Trader?
If he is no longer a Sole Trader, I would think not.

2.- What happens to his now ~ $12k of losses from being a Sole Trader?
They can't be transferred into the Pty. Ltd. as far as I am aware.
The sole trader situation would need to be wound up

But can he be a Sole Trader too? Like when Joe was an employee of Camera Company, but was also a Sole Trader.
The primary objective is to get back the "deferred loss".

cisco said...
3.- Can he be a subcontractor for the new EVO Pty Ltd?
Eg: Telstra has a contract with EVO Pty Ltd. Joe does the work > Telstra payment goes to EVO Pty Ltd > Joe invoices EVO Pty Ltd.

He could do that but why? Just adds another layer of tax reporting and therefore costs.

Because then Joe can invoice up to the $12k he lost as a Sole Trader.

cisco said...
4.- Joe also has ~$10k capital loss from 2004... can he pay himself minimum wage and take the rest in dividends and claw back some of the CG loss he's been carrying around for so many years?

Was the loss from being a sole trader?? In a P/L Co, if the Arts and Mems of Assoc state the Co will buy and sell capital items like R/Estate or equipment, capital gains or losses can be made and become normal profits or losses taxable at 30%.

Losses may be carried forward. Gains may not and are taxable in the year they are made.

Best way to defray a loss is in a deal such as a capital gain on a piece of property or chattel.
Keep in mind the best way to hold property in a personal name not a P/L. That gives a 50% CGT liability relief. Pty. Ltds. are not as good as formerly. You might look at trusts or self managed supers. Talk to an accountant who is not a proxy employee or the ATO.

No his loss was from buying shares in Sons of Gwalia, which went broke.

cisco said...

5.- What's the best way to limit tax liabilities in a 1 man Pty Ltd?

Depends what the income is. If the P/L pays all it's bills and then pays Joe what is left and the tax rate on that is less than 30%, that is way to go. Joe could also reduce the tax rate by splitting the income with his guard dog or kitchen bitch.
Joe will still need an accountant for his company tax returns.

Splitting income with guard dog... tell me more.
Also what's all this malarkey about Workcover?

Thanks again.

Now Joe is an employee of the Company, the Company will have to pay his workers comp insurance his super, long service, business insurance and have to pay the 30% company tax rate.
I am an employee of my company and I subcontract to other firms not to my own company because the Govt have strict rules on what constitutes a subbie, I think its something like more than 75%? of your income cannot come from one company otherwise you are classed as an employee

FlySurfer said...

Splitting income with guard dog... tell me more.
Also what's all this malarkey about Workcover?

Splitting income with "partner" be it male or female.

Re Work Cover:- If everything is "in house" ie. working on your own stuff on your own premises, I don't think you have to have it.

If it is an out call business, working at a client's premises, I think you have to have it.

Most accountants seem to be charging minimum $1200 for business or company tax returns so it becomes a question of quality of service. That is the hard thing to find.

busterwa said...
Does JOE produce a product or a service? Or just overinflating goods that can now be purchased internationally?

Service.

there is a reason wogs love cash....

pweedas said...
Joe Sixpak might want to check into whether profit made from work contracts can be offset by losses made on the share market. As far as I know they can't.
If I understand it correctly then capital losses on shares can only be offset by capital gains in shares.

That can't be right, can it?

bobajob said...

pweedas said...
Joe Sixpak might want to check into whether profit made from work contracts can be offset by losses made on the share market. As far as I know they can't.
If I understand it correctly then capital losses on shares can only be offset by capital gains in shares.

That can't be right, can it?

Technically correct, a capital loss can only be offsett buy a capital profit not necessarily from the same genre, ie shares/shares. it could be shares/equipment.

Joe could sell his equipment to his company and make a profit - maybe

Go get an accountant - Joe!