PDA

View Full Version : Traders - Forming a company or another account?



Dazza
13-01-2005, 09:41 PM
Alrite, im sure most traders started off as investors right.

Well im thinking about trading for a bit... and debating about if i should have a trading account or form a company as most traders do.

I could go and do some research etc, but hey i thought ST has a lot of well informed kind hearted people that would show a newbie whats what :D

now current situation is, im a uni student, working though aswell and i can probably save... 5k a year maybe...

Current finanaces is about... $13k in shares.

now could someone tell me a bit about companies?
i know they have to file annual reports how much?
initial setting up of a company = $50? correct?
what are the on going fees - annually off course - and can we claim them back?

what can we claim back? and what cant we?

are all tax = 39%???
i mean if so.. wouldnt it be better to start of as another account paying what 20% tax? - note income for the year = under 20k

whats the minimum capital we need? $5000 maybe?

any information would be great thanks.

Dazza
13-01-2005, 10:12 PM
also... could someone tell me what the capital tax is on trades?

if my income from wages is less than $20k a year..

thanks in advance

Snow Leopard
14-01-2005, 06:37 AM
Given your income level then I would have thought that you should trade as an individual and be taxed at 19.5% as opposed to a company at 33%. The trick is to separate your trading activities from your investing activities (so that hopefully you can pay 0% on investment capital gains) to the satisafaction of the tax man. Just about everyone on this site who has asked how to do this has received a different answer and the IRD are happy not to make a definitive ruling. A separate trading account and a different registration name for the shares would help.

OldRider
14-01-2005, 08:15 AM
Dazza, given that each has a different view of what a trader is, I think it's a possibility that most investors started off as traders.

whiteheron
14-01-2005, 08:40 AM
OldRider

And I think that you will find that a number who started out as investors have got hooked and become active traders

This certainly happened with me

Still have a few long term holds though , trading shares are registered separately for tax purposes

Steve
14-01-2005, 09:21 AM
quote:Originally posted by Paper Tiger

Given your income level then I would have thought that you should trade as an individual and be taxed at 19.5% as opposed to a company at 33%. The trick is to separate your trading activities from your investing activities (so that hopefully you can pay 0% on investment capital gains) to the satisafaction of the tax man.
...
A separate trading account and a different registration name for the shares would help.

My thoughts an the above:

A seperate trading account & registration name will most likely NOT help with the tax man if you are an individual. ONCE THE IRD HAS DEEMED YOU A TRADER, YOU WILL ALWAYS BE A TRADER IN THEIR EYES. There needs to be a seperate entity (eg:individual for investing; company for trading) to keep it clean. You are correct in thinking of making this distinction (ie:company) from the start.

Even though you trade through a company, simply by being a shareholder enables you to allocate any income to yourself and pay tax at your lower rate of 19.5% instead of 33%.

Dazza
14-01-2005, 09:53 AM
thanks for the replies so far, is there anyone who has done this? and could tell me roughly the process they went thru and the costs involved??

steve - allocating income? i thought the company had to pay the tax first and then the profit after tax becomes income for the shareholders - ie youself

Snow Leopard
14-01-2005, 10:06 AM
You can create a company via
http://www.companies.govt.nz/
it costs $10 to reserve a name
and then $50 to form the company.

You can go to someone who does company creations they start at $120+

I think that you can then maintain the company for nothing

I would read the companies act 1993 and the relevent ? financial reporting act ?

Steve
14-01-2005, 04:19 PM
Dazza

If you had a seperate company set up for your trading, you are able to allocate any (some or all) income to yourself as long as you are a direct shareholder. Any income not allocated would be taxed within the company, which would then be able to be paid out as a dividend with imputation credits.

PT has detailed the cost of setting up a company yourself. The only on-going cost would be if you used an accountant to prepare the annual accounts & tax return. The level of this cost, in part, will be dependent of what sort of records you keep during the year!

There is a requirement to file an Annual Return with the Companies Office, which is basically just to ensure they have their database up to date. There is no fee if this is done over the internet.

Small closely-held companies, such as what yours would be, are generally exempt from the requirements of the financial reporting act.

Dazza
14-01-2005, 08:30 PM
shot mate, steve are u doing this type of thing as of now?!

Lawso
15-01-2005, 07:30 AM
Dazza: I'm not going to offer my two bits worth as to whether or not you should form a company. But I do recommend a separate bank a/c for your investing/trading activities. Years ago, when I got into serious stockmarket activity, I opened a Macquarie Gilt Edge Access a/c and have never regretted it. You get a cheque book and they pay interest on the credit balance, with no minimum threshold. What I particularly like is the provision in the front of the cheque book of a record of transactions - you can enter details
of every cheque you write and every deposit - every buy or sell. It's wonderfully simple and efficient especially for a simpleton like me. I use the GEA a/c solely for my investing, using WBC cheque accounts for all other income/expenditure. It's often convenient, but not obligatory, to use Macquarie Equities as a broker.
They're not paying me to say this!
Good on you, Dazza, for starting early. Good luck.

Steve
15-01-2005, 09:23 AM
quote:Originally posted by Dazza

shot mate, steve are u doing this type of thing as of now?!


Yes. Been doing it this way for 10 years now...

Dazza
15-01-2005, 11:07 PM
could u bear us some more info steve? how u set it up and run it etc? give factual numbers instead?

while driving back home, i came up with an idea....

ok say i start the company with $10,000

now my main concern is, i will be investing $200 weekly to the company. how do i do that? under what transaction?

now i will have a debenture to parents of say 8% pa *say they gave me the 10k*

end of financial year, say i made 2k from the trades. so i pay my olds 800 bucks *the 8%*.
that leaves me with 1200.

can i like transaction say give shareholders all profit, therefore $1200 is given to me... then i pay personal tax , say its 20% = 240 bucks...

thus i have left over of $960...

now can i then reinvest that 960 into the company as new capital?

that for , the year ending the balance sheet will be $10,960?

instead of...

NP afta expenses etc = 1200... then u pay the 33% tax... and retain all earnings.. etc etc..

is that possible?

btw flat tax rate for companies = 33%?

Dazza
15-01-2005, 11:31 PM
i guess another way could be... say 1200 profit ... and then tax it on 33%... then rest say its about 800 bucks. howeva dividend = 100%.. with imputation credits...

so pay that back to me... 800 bucks n then i claim the imputation credits (ill be on 19.5% tax)

and then its still ends up the same rite?

Harrys
16-01-2005, 09:04 PM
Dazza

If you are going to form a company you will need at least 2 directors and you will have to accept that the company is a separate entity and has a life of its own. Someone will have to fund the company to provide it with its capital and you may put money into the company from time to time as loans on wich the company might pay you interest (as the directors decide). You can also use a "drawings account" to put in or take money out but the tax dept will be interested in that because they would consider a drain on the drawings account to be wages in disguise and you would be taxed on that at your usual rate.

My wife and I own a company which we could use for trading shares thru but we hav'nt bothered yet. But like others, we started out as "investors" 2 yrs ago but we are getting close to looking like traders now.

Good luck

zyreon
17-01-2005, 05:24 AM
you do -not- need 2 directors
you can fund it yourself and are limited only to the law and your imagination as to how this may be done
tax status "Qualifying, or Loss Attributing Qualifying Company" will have the company taxed, not dissimilar to a partnership

Steve
17-01-2005, 08:05 PM
quote:Originally posted by Dazza

could u bear us some more info steve? how u set it up and run it etc? give factual numbers instead?

while driving back home, i came up with an idea....

ok say i start the company with $10,000
You have a choice of either introducing it as Paid In Capital (ie equity) or as an advance to your Current Account

now my main concern is, i will be investing $200 weekly to the company. how do i do that? under what transaction?
The transaction would simply be adding $200 to your current account each week

now i will have a debenture to parents of say 8% pa *say they gave me the 10k*

end of financial year, say i made 2k from the trades. so i pay my olds 800 bucks *the 8%*.
that leaves me with 1200.

can i like transaction say give shareholders all profit, therefore $1200 is given to me... then i pay personal tax , say its 20% = 240 bucks...

thus i have left over of $960...

now can i then reinvest that 960 into the company as new capital?

that for , the year ending the balance sheet will be $10,960?
Yes, you may allocate the profit to yourself as a shareholder salary for tax purposes and this would be the current account balance if the company paid the tax on your behalf



instead of...

NP afta expenses etc = 1200... then u pay the 33% tax... and retain all earnings.. etc etc..

is that possible?
By doing it this way, the company would be taxed on the profit $1,200 @ 33% leaving $804 as Retained Earnings, which you have the option of paying out to yourself as a fully-imputed dividend


btw flat tax rate for companies = 33%?

Dazza
19-01-2005, 01:13 PM
cheers for the reply steve.

i tink at this stage i mite just create another account - trading.

now... im at national bank online share trading at the moment.

i have heard from posters that i have to have a completely different account name.

could u guys explain fully what this means?

say my current national bank account is under the name Dazza.

can my trading account be called - Dazza Trading Account?!?!?

lawso some suggestsions pls?

Lawso
19-01-2005, 02:02 PM
Not sure I can help there, Dazza. I have a company that is now used only for investing and the Macq GEA a/c is in that name, with all investing/trading activities going through it. The Westpac a/c is in my own name and is used for all living expenses and non-investment income. Others may operate differently and be able to advise you but my system works fine for me - simple and uncomplicated, like yours truly.