There may be tax consequences if you take or use money or assets from your company or trust for private purposes.
There are different ways to take or use money or assets from a company or trust. It’s important to understand reporting and record-keeping requirements for transactions.
- Salary, wages, and directors’ fees
You can be an employee and a shareholder or director of the company that operates your business. You can also be an employee and a beneficiary of the trust that operates your business.
- Fringe benefits tax and allowances
Fringe benefits tax (FBT) may apply when employees or directors of a company or their associates receive benefits from the company or trust. This could be a payment or reimbursement of private expenses or being allowed to use business assets for private purposes (such as the business’s car).
- Dividends
If your business is run through a company, the company can distribute its profits by paying dividends to its shareholders, which can include you.
The dividend may include a franking credit (the amount of tax already paid by the company) which can be used by shareholders to offset their income tax liability.
- Trust distributions
If your business operates through a trust, the trustee may distribute a share of trust income to beneficiaries.
The trustee should advise and document this in the trustee resolution.
- Lending money or assets
Companies lend money or assets to shareholders and their associates
When a company lends money or assets to a shareholder, the shareholder may be taken to have received a Division 7A deemed dividend if certain conditions are not met.
To avoid a Division 7A deemed dividend, before the company tax return is due or lodged (whichever comes first), the loan must either be repaid in full or put on complying terms.
Trustees lend money or assets to beneficiaries and their associates
If you borrow money from the trust, you need to keep a record of it. If the loan is on commercial terms, you need to repay the principal and interest as per the loan agreement. The trust needs to report the interest in its tax return.
Understanding the implications of using your business money and assets for personal use is critical to managing your tax implications.
Contact us today if you need assistance in managing this for your business or you believe you may have an issue which needs managing. Don’t trigger any more tax than you have to.
