- May 11, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Transitioning from Sole Trader to Pty Ltd
I have been operating as a Sole Trader for a few years and have recently incorporated as a Pty Ltd. This transition brings new considerations when it comes to managing finances and taxes.
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## Managing Tax Liabilities
As a Sole Trader, I have always set aside money from every paid invoice to cover tax liabilities. However, with the Pty Ltd structure, paying myself from the company adds a layer of complexity.
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## Setting Up Superannuation Contributions
I have set up Single Touch Payroll (STP) and have a good understanding of how tax withholding works. To simplify the process, I plan to pay super contributions with every pay run and set aside tax liabilities in a High-Interest Savings Account (HISA) to ensure I am prepared come tax time.
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## Calculating Company Profits and Tax Liabilities
I am aware that any profits left in the business will be taxed at the company tax rate, while the salary paid to me will be taxed at the personal marginal tax rate. I prefer to avoid debt and unexpected tax surprises at the end of the financial year.
**AI Legalese Decoder**: The AI Legalese Decoder can provide insights on how to account for company tax liabilities, including running P&L reports quarterly to calculate profits, setting aside a portion for tax liabilities, and ensuring compliance with tax regulations.
## Seeking Advice
Given the complexities of managing finances and taxes as a Pty Ltd, I am seeking advice on the best approach to handle company tax liabilities and ensure financial stability.
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Yes you’re approaching it the right way but a lot of businesses will do it monthly rather than quarterly
Don’t really know what I’m doing, but I’m about 6 months ahead of you in terms of moving from sole trader to company and doing much the same. I’ve just been putting the profits into business term deposits every few months with plenty liquid to cover salary/PAYG/BAS etc. I am fortunate to have very minor expenses and produce high profit, so not an issue.
I figure the money gets taxed at the lower company tax rate, so best to leave the cash in the business and just pull out a decent salary without paying more in tax. Beats being in the max tax bracket and paying more tax, just a bit slower to get access to the money.
Just to be clear. Just because you “ leave the money in the company “ doesn’t automatically mean the company is taxed and not you.
It will depend on the type of income you are earning in the company. Have a look at ( or have your acct explain ) attributed income and psi and psb income.
Sounds like your company is earning enough money to be registered for gst. You are supposed to be charging gst on each tax invoice.
So each quarter you should be paying the ATO gst collected less gst paid.
As part of your BAS, you will be required to pay company tax. This will be an estimate of your taxable income based on your previous year’s taxable income.
Do you have an accountant helping you with transactions to the ATO?
I’m not sure what you mean by move money to a HISA. I assume you mean you’re moving business money into personal accounts?
Loling
Profits?