I thought about going through this, but decided getting an ABN as a simple sole-trader was a lot easier. There are still a few reasons a holding company would make sense – estate planning would be simpler, among other things – so I may reconsider that at some point.

Many thanks for your comments. I have read the philosophy behind your AEReS project and it is absolutely fascinating! I will use this forum to communicate with future issues.

The shares in a company that each member owns is a measure of the proportion of a company that each member owns. If, for example, you each paid $50 for your share of the company when registering, you now all own an equal share in the company and the company has $150 from the sale of these shares. If the company then received $30,000, regardless of the source, you would now all have an equal share in a company which now has $30,150 in cash and/or assets. It doesn’t matter where that money came from, even if only one of you put in all that money, you would still all hold an equal share, since you all have the same number of shares in the company.

So from the point of view of ownership of the company it doesn’t really matter if you buy your initial share of the company with your $10,000 each, or add it later. Probably the most important thing would be to document everything. Always remember that a company is a independent entity. If you give it $10,000, that is now the company’s $10,000 and you can’t just take it back again later. You can of course arrange to loan your company $10,000 with zero interest if you like, in which case you can later receive the money back. You just need to enter into a contract with your company to do this. This is worth noting, particularly if you think you will be topping up company cash reserves from your own private money in the future. It is the in the company’s best interest to have it documented exactly what are the obligations of the company when receiving money from private individuals. If, on the other hand you were only putting in this initial amount and no more, it would probably be easiest to simply buy your initial shares of the company with your $10,000 each. You can make the shares worth however much you want, ie 100 shares of $100 each or 1000 share of $10 each etc.

If you register your company first, it will actually be your company, not you, applying for your ABN. In this case the Australian Business Register will use your Australian Comany Number (ACN) to form your ABN. You can thus use just your ABN on all your documentation rather than having to use both numbers, since your ACN will form a part of your ABN.

An explanation as to the difference between the ACN and the ABN can be found at:

http://help.abr.gov.au/content.asp?doc=/Content/17869.htm&placement=ABH/FAQ&usertype=BC

I hope this helps.

Appreciate your answer.

Thanks & regards
Chandana

*I am aware your advice is of a non-professional nature.

If your company pays for the expenses incurred by your husband in performing company business then this is a legitimate business expense incurred by the company and will be shown on your company’s tax return.

Only if the company pays your husband a wage for services rendered, or you receive a directors fee or some other form of payment from the company will this need to be reported in your personal tax return.

It is important to keep in mind that any income received by your company minus expenses is your company’s profit, not yours. You control the company, but you your selves are not the company.

People use the corporate structure for this very thing. As an individual you earn an income, the government taxes it you you get what is left. If you form a company, your company earns an income, can use what ever it needs to to perform its business, then gets taxed on what ever is left at the corporate tax rate.

The benefit for the owners/directors of the company is they can choose how much they get paid by the company, and therefore what their individual tax liability is. Without a company, a person just earns whatever their job gives them and has to be taxed at the individual rate for all of it.

I hope that makes some sense. It is getting near to tax time, it would be worth speaking to your accountant for specifics on tax rates and how to maximise your income by legitimately proportioning your incomes between you. For example, an individual can earn up to $30,000 and pay only $0.15 in tax for the portion of the amount between $6,001 and $30,000. Similarly, if you earn more than $30,000 only the portion of your wage between $30,001 and $75,000 is taxed at $0.30 in the dollar. Thus you would have to be earning more than $75,000 for it to be worth while setting up a company to help minimise your tax purely on the grounds of income tax. A company doesn’t get a tax free threshold like an individual does, so a company earning $75,000 pays more in tax than an individual does.