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Tax Issues

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BullsnBears
Contributor
Hi experts. Would I pay less tax by starting a company and trading under the company name instead of trading as a private individual? What sort of difference in tax rate can I expect?
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14 REPLIES 14
Frequent Contributor
I recommend checking with a professional, but
its very similar, you either pay 40% in your own name
or 28% in a company and then another 15% if you pull it out,
or 28% and 40% in your own name. (depending on how you get the money out)

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Super Contributor
That 28% is only available if recognosed as SE. Criteria determines that inter alia you have to have 3 employees.
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Frequent Contributor
Sorry Im not following you.
Are you saying this will be 40% if you do trading?
What provisions look at 3 or more employees?

Im just wondering if your thinking of a personal service company or a trust.
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BullsnBears
Contributor
Thanks Bchip. So there's really not much benefit to going with the company then?
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Super Contributor
Worse - you lose your capital gains exemptions.
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BullsnBears
Contributor
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Frequent Contributor
...you dont have capital gains exemption if your trading.
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Super Contributor
Yeah, yeah. Looking at the whole story. We all know all about the bottom drawer.
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Super Contributor
I have been investing as a registered cc for 20 years now.I also invested in my personal capacity at the same time-I found advantages eg I set up a provident fund-i also set up health care-paid a salary to myself and claimed alloweable expenses.there are pros and cons but I certainly have not regretted setting up the cc-I also set up a family trust over 20 years ago with my father and despite negative comments about trusts it has worked well for my family.suggest you consult a professional accountant and understand the pros and cons and then make a call-good luck
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Super Contributor
I actually think a Pty is probably a better option than a trust - if carefully conceived and structured - if for no other reason than the certainty about its legal status.
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Super Contributor
pty for sure more flexible than trust but u need enough revenue to justify accountant costs -u can have a trust as well-its a way of making donations yearly to put aside money for family and avoid inheritance tax if you can look that far ahead-when i started i was unsure how big my portolio would grow so I chose a cc as it is 'cheaper' to set up and run
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Super Contributor
CC's are now a thing of the past. Small companies no longer require an auditor - so the same cost as a CC. The only complexity is capturing the dividend stream. Salary structures based on internal return are the most obvious solution.
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Super Contributor
I understand you can still buy a second hand cc but if small pty not audited then pty seems better.not sure I understand your comment about capturing divs .obviously div tax does not apply but if u make profit then normal company tax is applied -salary is upto how much company can afford I guess.my view would be if you generate enough income and you expect to be doing this for a long time a pty is certainly worth considering.
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Super Contributor
The advice given on the take out rates and hurdles was the best. Juat start there and se a competent firm of accountants or tax specializing lawyer - especially if you want to go the trust - route. the idiots who given advice on trusts out there are like the bubonic plague- to be avoided. Just remember once you introduce a third party - trust or company - you introduce two things - which are never going to go away. 1. Costs and this is not only a yearly cost- but at least remember that those costs will rise faster than inflation. 2. Secondly, you introduce a target for SARS. And planning on the basis of what you see as existing rules is not necessarily going to be enough. This I say on while having cast an eye over the run- up to where we are - and casting forward a glance into what one could term scenario tax planning in the light of a government which needs money - and a closed world tax system. SO while the Newcastle man is right - don't forget the problems of tax. And remember - we don't make those laws.
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