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Micro company mega issues for self-supporting 59-year-old
Here's my problem.
I have had a very small home-based company (pty ltd) for the past ten years, which was originally started with my ex-husband, but now I am the only director and the only "employee".
The company was floated on what is called a "Shareholder Loan" (i.e. our own money) so any drawings we took over the years were considered repayment of that loan. At least, that's what I understood. For six years, we had excellent accountants, but changed when we moved to Queensland. After my ex and I split, I discovered the new accountants were not doing the job properly, so early this year I found a new one. This current guy fixed everything up, or so he said. He is now not only my accountant, but also my registered office. Last week he took off on a fortnight's holiday. Great timing!
The day before he left, he told me that the Shareholder Loan is now paid out and thus I must begin making PAYG contributions via the BAS. Okay, that bit I understand.
However, he has also announced that my company must pay 9% into a superannuation fund, starting with a $1000+ injection this month. The company earns very little -- just enough to support me. For instance, I've drawn only about $21,000 this year, and that's all there is bar approximately $300 left in my business account as at yesterday's date (30th June). I am registered for GST and have always paid on time. I have no debt.
My plan, since earlier this year, has been to close the company and continue working as a sole trader (GST exempt) but my accountant says it will take quite a while to do so. I don't understand why, and he seems to have a problem explaining it to me. Basically, I feel I don't need a company. My business is a simple one, designed to keep me self-supporting.
Last week, when I asked the current accountant why my previous accountants (the excellent ones I started with) made no mention of superannuation, he said he didn't know. I also asked why he had waited until mid June to tell me I would need to join a super fund NOW, but received no answer. I have made an appointment to see him on July 10, but want some info prior to that time.
I am 59 years of age, and work alone (about 35 hours a week). I can barely afford to manage on a month-to-month basis, let alone make super contributions. Money is tight now, but my old age is taken care of by an inheritance/trust. I plan to keep working until that time. To pay the company super contribution and the PAYG, I will need to raid my meagre personal investment account which contains only $8,000.
Based on all the above, could someone advise:
(a) Should my company have been making 9% superannuation contributions all this time given the above circumstances?
(b) If the superannuation is now required, should it be my company that joins, or me? I was told by a chap from ING Inegra that it is the company that needs to join. Most of my friends have told me it should be the other way around.
(c) Can anyone recommend a good super fund under these circumstances?
(d) Why would shutting down my company take months, and why do I have to keep it running after 30th June?
(d) Any other advice, PLEASE!!! I'd be most grateful.
I have had a very small home-based company (pty ltd) for the past ten years, which was originally started with my ex-husband, but now I am the only director and the only "employee".
The company was floated on what is called a "Shareholder Loan" (i.e. our own money) so any drawings we took over the years were considered repayment of that loan. At least, that's what I understood. For six years, we had excellent accountants, but changed when we moved to Queensland. After my ex and I split, I discovered the new accountants were not doing the job properly, so early this year I found a new one. This current guy fixed everything up, or so he said. He is now not only my accountant, but also my registered office. Last week he took off on a fortnight's holiday. Great timing!
The day before he left, he told me that the Shareholder Loan is now paid out and thus I must begin making PAYG contributions via the BAS. Okay, that bit I understand.
However, he has also announced that my company must pay 9% into a superannuation fund, starting with a $1000+ injection this month. The company earns very little -- just enough to support me. For instance, I've drawn only about $21,000 this year, and that's all there is bar approximately $300 left in my business account as at yesterday's date (30th June). I am registered for GST and have always paid on time. I have no debt.
My plan, since earlier this year, has been to close the company and continue working as a sole trader (GST exempt) but my accountant says it will take quite a while to do so. I don't understand why, and he seems to have a problem explaining it to me. Basically, I feel I don't need a company. My business is a simple one, designed to keep me self-supporting.
Last week, when I asked the current accountant why my previous accountants (the excellent ones I started with) made no mention of superannuation, he said he didn't know. I also asked why he had waited until mid June to tell me I would need to join a super fund NOW, but received no answer. I have made an appointment to see him on July 10, but want some info prior to that time.
I am 59 years of age, and work alone (about 35 hours a week). I can barely afford to manage on a month-to-month basis, let alone make super contributions. Money is tight now, but my old age is taken care of by an inheritance/trust. I plan to keep working until that time. To pay the company super contribution and the PAYG, I will need to raid my meagre personal investment account which contains only $8,000.
Based on all the above, could someone advise:
(a) Should my company have been making 9% superannuation contributions all this time given the above circumstances?
(b) If the superannuation is now required, should it be my company that joins, or me? I was told by a chap from ING Inegra that it is the company that needs to join. Most of my friends have told me it should be the other way around.
(c) Can anyone recommend a good super fund under these circumstances?
(d) Why would shutting down my company take months, and why do I have to keep it running after 30th June?
(d) Any other advice, PLEASE!!! I'd be most grateful.
Views: 6
Replies to This Discussion
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Permalink Reply by JG on -
a) First bit is easy. Repaying a loan is not the same thing as paying a salary. Salaries have to have super paid on them. Once the loan was repaid the money became a wage. Bear in mind you won't be able to keep working forever, you're going to need some super socked away and it gets a better tax treatment than your savings.
b) IIRC, your company could come on as a client of a fund which would then take the super of all your employees. But as there's only one of you that's a little cumbersome and just paying the super into another fund might be easier.
c) Without wanting to be seen to be giving financial advice, if I was shopping for a super fund right now I'd go with Russell/ANZ or Westpac/BT because they're doing some great things with packaging super up with your everyday banking products.
d) Do you want your business to cease completely? If not it's going to take some time.
d2) I know I'm just as guilty of letting things drift but it might help if you saw the pain of this changeover process as just the final sorting out of affairs from your divorce. Lentils and rice are still pretty cheap and can keep you going through the tough times. Also Berri Claret at $14 for five litres is my personal top budget tip!
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Permalink Reply by Shastapatch on -
Thank you JG! Your answer to (a) was what I suspected, but for some reason my accountant hasn't been able to communicate this to me. I was extremely concerned that perhaps I'd inadvertently been doing something wrong by not making the 9% company super contributions all along, which in turn stopped me from phoning the ATO and asking their advice.
Thank you also for the additional answers and suggestions. You have been most helpful and I'm much relieved. And yes, I agree about this really being part of the divorce repercussions.
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Permalink Reply by Shastapatch on
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I've just read through your response again JG and no, I don't want my business to cease completely. Basically, I want to keep my clients (I'm a web designer/developer) and continue working for them as I have in the past. However, because of my low income, I see no point in continuing to do the GST thing unless someone with financial smarts can convince me otherwise.
As smoothly as possible, I want to wind down the company and simply operate under an ABN without all the obligations and complications that go with having an ACN. I have a business name owned by my company which I'd like to keep if possible (it differs from my company name), so I guess I'd have to buy it out. Right? Apart from that, the only thing the company owns is my computer and my client list.
Any tips on how I could handle the transfer?
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Permalink Reply by Manish Dev on -
Shashtapatch, given your circumstances you are far better off as a sole trader than operating as a company.
One thing your accountant should have advised you is that given your income is less than $50k per annum, you don't need to be registered for GST - this will save you the hassles of dealing with it.
For my take on your questions:
a) With a company you don't need to pay yourself super (or a salary for that matter). But this is a moot point because you will be changing to a sole trader. Get another accountant, or better still, dump your accountant, change to a sole trader immediately and start running everything through that. The ATO will then help you with questions about winding down the company (which you don't need). You can probably do your taxes yourself.
b) No need to pay yourself super.
c) If you want to pay yourself super, funds can be much of a muchness. Check out Morningstar for how funds have performed recently.
d) You can cease it immediately, it's just that because we're into a new tax year (just), you'll have to file another return for the 2008/09 tax year. It will only take a few days liaising with the ATO to shut down the company. You can start running it as a sole trader business almost immediately. The business.gov.au website is your best place to get things moving.
d2) Switching from a company to a sole trader will hurt to begin with, but will be well worth it in the end. It will allow you to cast off the old company (and your ex in the process!) and maybe even your accountant. With your business you don't need anything more complicated than a sole trader setup - simplicity is underrated.
Good luck.
Manish
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Permalink Reply by Shastapatch on
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Manish, this is fantastic news! I was of the understanding that as soon as I had paid off my company's Shareholder Loan, and began drawing funds to live on (now a "wage" or "salary" as opposed to a "repayment of loan"), the company must contribute super to its employee (i.e. ME!). Are you saying this is not correct?
I am really worried about my accountant, as I believe he has no understanding of, or perhaps empathy for, situations like mine. It seems I should have an in-depth chat with the ATO. Simplicity is what I'm aiming for!
Can I change to a sole trader while I still have the company? For instance, are you suggesting I just let the company sit on the sidelines until I can wind it up, while I continue operating as usual but under my given name as opposed to my company name? When you say that "switching from a company to a sole trader will hurt to begin with", what exactly to you mean? Are you referring to the complications and hassles of informing my clients, setting up new bank accounts etc?
This forum is a wonderful resource! I am quite overwhelmed by the assistance I'm receiving.
Many thanks to you all.
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Permalink Reply by Miffy on -
Hi Shastapatch, while I can't answer for Manish, I think you're right - he's saying that the pain is just an extra bit of administration in setting up the Sole Trader and winding down the Company. Changing ABNs, setting up new bank accounts, dealing with the ATO, filing tax returns for both the Company and the sole trader for the financial year 08/09, that type of thing. Nothing too big.
And yes, I'm pretty certain you can register as a sole trader, start using that and cease using the company. You can then deal with the admin of winding up the company.
As for super, I'm with Manish on this - you won't need to do anything with super. I was set up as a sole trader a while back and didn't pay myself a cent in super. And the tax is easy if you have a simple set-up. No need for accountants who won't care as much about your business as you do - or we do, for that matter! ;)
Miffy
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Permalink Reply by Kylie on -
Your accountant is employed by you, shop around and get a second opinion as you would with a doctor if you didn't like the diagnosis. You could find the info on various sites if you wish to do so, I'd try the tax office site as they have a lot of info and go from there, but finding someone to tell you would be quicker and easier.
Good luck
Kylie
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Permalink Reply by Shastapatch on
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Many thanks, Kylie. I'll trawl through the ATO site but, as mentioned in my response to JG, will probably give them a call.
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