Using your business money and assets
USING MONEY FROM YOUR COMPANY
Salary, wages and directors fees
One of the main ways you can take money from your company is through salary, wages, and directors fees. If you are a director or shareholder of a company you can be paid salary, wages or directors fees depending on your arrangements with the company.
If the company is paying money out in these ways it will pay the wage, salary, or directors fees through its payroll system. That payroll system needs to have Single Touch Payroll-enabled software that reports payroll information to the ATO. The company must withhold tax from the payments and make compulsory employer superannuation contributions. Failure to withhold may mean a deduction is not allowed.
If you are receiving salary, wages or directors fees from a company, those payments are taxable, and you need to report them in your individual income tax return.
Record and report distributions of your business profits
One of the main ways you can take money from your company is through a distribution of profits.
If you are a shareholder, you can choose to take money from a company as a formal distribution. A company can pay a distribution of its profits to its shareholders, which is known as a dividend. The dividend may have a franking credit attached – it is the amount of tax already paid by the company on its profits and it’s passed on to you for inclusion in your tax return, to offset your income tax liability.
If the company is distributing its profits through franked dividends it must issue a distribution statement at the end of each income year to everyone who receives a dividend. It must show the amount of the franking credit attached to the dividend and the extent to which it’s franked (or the amount of tax already paid on it by the company). The company may need to lodge a franking account tax return. The company cannot claim a deduction for dividends paid as these are not a business expense, but rather a distribution of company profit.
If a company is distributing dividends to you as a shareholder, you must report the dividends or payments and any franking credits that you receive in your income tax return. You may have to pay income tax on the dividends you are paid or, alternately, you might receive a refund of any excess franking credits if they exceed the amount of income tax you have to pay.
Personal use of business assets
You can take money from your business through the use of company assets for personal or private use. Do you or your employees use business assets for personal use? If you, as a director or shareholder or your associates are using business assets for personal use you need to treat these benefits like business transactions.
The most common ways that business assets are used for personal use are as follows.
- If you are an employee of the business, you have access to the use of business assets or benefits that are paid for by the business. For example, non-business use of the business vehicle. Or if the business is paying for your gym membership.
- If you are not an employee of the business, for example a shareholder or associate, you will also have access to the use of business assets or benefits that are paid for by the business.
- Or if the business transfers business assets to you as an individual. For example, if a company has 2 company cars, both belong to the company, and one is signed over into your name where you now own the car.
Transfers of company assets
If the company transfers an asset such as one of the company cars into your name, the company will need to consider any tax implications when treating the disposal of the company car. The transfer of the car will be considered the disposal of a depreciating asset to you and may require a balancing adjustment in the company tax return.
USING MONEY FROM YOUR TRUST
One of the main ways you can take money from a business that is operated by a trust is through salary and wages. As a beneficiary you can be employed by the trust. You can be paid salary and wages. The trust that operates your business will pay the salary and wages through its payroll system. That payroll system needs to have Single Touch Payroll-enabled software that reports payroll information to the ATO.
The trust that operates your business can generally claim a deduction for any salaries or wages paid. The trust must withhold tax from the payments and make compulsory employer superannuation contributions. Failure to withhold may mean a deduction is not allowed.
If you are an employee of the trust that operates your business, you must include any salary or wages you receive from your business as assessable income in your individual tax return.
Record and report distributions of your business profits
Beneficiaries receive formal distributions of the trust profits and they pay tax on those distributions at their appropriate tax rates, depending on their circumstances. If you as a beneficiary want to take or use trust money during the year for personal use it may be accounted for as part of your trust distribution.
Details of the trust distribution should be included in the statement of distribution which is part of the trust tax return lodged for each financial year. The trust cannot claim a deduction for distributions paid as it is not a business expense, but rather a distribution of trust income.
Personal use of business assets as an employee
As a beneficiary if you are employed by the trustee and have the use of business assets for personal use or you are using trust money to pay for personal benefits the trust may have Fringe Benefits Tax obligations. Fringe Benefits Tax is separate to income tax and is calculated on the taxable value of the fringe benefit.
If the trust is paying for these types of benefits it might need to lodge a Fringe Benefits Tax return and pay any Fringe Benefits Tax liability it may have. The trust can generally claim an income tax deduction for the cost of providing fringe benefits and for the Fringe Benefits Tax it pays. It can also generally claim GST credits for items provided as fringe benefits.
Personal use of business assets as a non-employee
If you are a beneficiary and are not an employee of the trustee, any benefits paid by the trust on your behalf (for example a gym membership) or any assets held in trust that you use personally, may be treated as payments or distributions to you. In these instances you may have the option of paying the trust the value of the benefit or personal use of assets. Otherwise it’s taken to be a payment made to you.
In regards to personal use of the assets held in trust, the trust deductions will be limited on those assets that are used for personal use. For example, their depreciation deductions will be reduced by the percentage of personal use.
https://smallbusiness.taxsuperandyou.gov.au/using-your-business-money-and-assets