I need to set up a Limited Company in Australia. The main reason is to protect my personal assets in case the company is sued.
My question relates to tax liabilities for both the Company (taxed normally at 30%) and an individual employee (taxed at their marginal tax rate) eg. Director. Is it possible to retain earnings in the Company each year (increasing capital) and pay the 30% tax, rather than pay this out as a wage to employee on a higher tax rate?
NOTE: 2010/2011 Tax Rates Used
1. If the company makes a net profit (before wages) of less than $37000 then all money should be paid to the employee.
2. If the company makes a net profit (before wages) of between $37000 and $80000 then it doesn't matter if money is retained or paid to the employee - same tax rate of 30%.
3. However, if the company makes a net profit (before wages) of $150000 (or any amount greater than $80000) then:
A) If $80000 is paid to the employee (tax payable: $17550). Company retains $70000 (company tax payable: $21000). Total tax: $38550.
B) If $150000 is paid to the employee (tax payable: $43450). A saving of $4900.
Is the Company then able to invest this money during the year in (say) shares? If there is a capital gain triggered during the year, will the company have to pay 30% tax on these earnings?
What happens to the retained capital when the company is wound-down? If this is allocated to the employee, will this be treated as a "fully-franked dividend" (which contains a 30% tax credit) to the sole shareholder / director / employee?