Traders - Forming a company or another account?

[Dazza]

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

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]

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]

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]

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]

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]

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]

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]

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]

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]

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