Trading through a 'Company' structure - Tax obligation

[unhuman]

what if that person is to sell those shares in that company to get the money out? - it may be a private company, but its still a share sale which are not capital gains taxed.

Whether the share sale is taxable or not is a different question and depends on many different factors. But ultimately if there is taxable income in the company, when the shareholder withdraws funds they will need to pay a salary or dividend. The dividend will have IC's attached thus 5% RWT will be payable bringing the ultimate tax rate to 33%, or a salary which will reduce the income in the company, while increasing the tax paid by the shareholder.

Also another question. If you set up an entity (company or trust) and that entity buys shares and sells them. It might be a mix of long term holds - which it would sell some of due to circumstance, and then short term opportunistic stuff, then does that entity have to pay capital gains tax?

I am asking because I know a lot of people would have companies of family trusts which would do a lot of share trading, but in a lot of cases these entities don't pay capital gains tax. It is a gray area with the IRD, so its kind of at what point is it "yes you are actively trading" and need to pay capital gains tax, or "we can see thats not what the entity was primarily set up to do"... all of this of course involves the IRD actually asking these questions of your entity, which usually means they are doing an audit of you, which is pretty rare....

Correct, basically answered your own question. This is generally why it is important to get an accountant or advisor of some sort involved early on so they can set up structures and do the right things that will demonstrate intention if the IRD were to come looking.

I agree there are probably many small time investors that would have issues between long term holds and short term trading if the IRD where to do a review or audit, leading to income tax risks. To be fair from my experience this is largely through ignorance - the "capital gain" concept for shares is not a black white issue which most people don't understand on a common law basis. There are however a couple of simply steps to minimise risk; i.e. keeping investing and trading in separate entities.

Audits are rare, but you would want your cards to be in order if you were on the receiving end of one as they can last decades...

Ultimately it is piece of mind.

[Harvey Specter]

Whether the share sale is taxable or not is a different question and depends on many different factors. But ultimately if there is taxable income in the company, when the shareholder withdraws funds they will need to pay a salary or dividend. The dividend will have IC's attached thus 5% RWT will be payable bringing the ultimate tax rate to 33%, or a salary which will reduce the income in the company, while increasing the tax paid by the shareholder.

Hold up. If the Company is not actively trading, then it is not paying tax on those capital gains. When you come to distribute those capital gains, you will have no IC's so any distribution will be fully taxed - not ideal (assuming you dont have IC's from other taxed activities). The only way to get untaxed gains out tax free is to liquidate the company.

In the good old days of qualifying companies, this wasn't an issue (note. from memory, legacy QC can still do this).