1. Social Entrepreneurs: An Evaluation of the Pty Ltd Company from a corporations law and taxation law perspective’
Fiona Martin and Marina Nehme
UNSW

2. Proprietary Company What is it? What are its key characteristics?
Why is it so popular?

3. Why choose such a Company?
Flexibility and Control
Limited Liability
Reporting

4. Challenges
Raising funds
Accountability
Tax?????

5. Taxation of Companies For income tax purposes a company is a taxpayer
But – unlike individuals, companies pay tax at a flat rate
Currently if turnover < $2m rate = 28.5%
Otherwise rate = 30%
So if your company has a taxable income of $10,000,000 – it pays tax of $3,000,000
Note – turnover is different to profit and profit is different to taxable income

6. Taxation of companies
When you have a company there are in effect 2 taxpayers
The company
The shareholders
There must be shareholders
Individuals pay tax at progressive marginal tax rates

7. Taxable income Tax is payable on taxable income
Taxable income = Assessable income less allowable deductions: s Act
Assessable income includes:
Fees for sale of services
Costs of good sold in course of business
Government grants (if for services)
Capital gains on sale of capital asset
Does not include ‘gifts’
Does not include GST charged on supplies
Deductions – complex area – business expenses

8. Deductions Business expenses – s 8-1 1997 Act
Eg salaries to staff, trading stock, rent of business premises
Gifts to DGRs
Note – if company makes a tax loss it cannot distribute this to its shareholders

9. Dividend Imputation
Company distributes some or all of its profits to its shareholders – dividends
Dividends may be assessable in the hands of the shareholders – s44(1) 1936 Act
All shareholders (including company shareholders) who receive a dividend are entitled to a credit for the tax paid by the company
New system commenced July 2002

10. Dividend Imputation System
Part Act (Divisions 200 to 207)
Dividends must be paid by Australian resident companies
Dividends must be paid to Australian resident shareholders
Applies to dividends paid after 1 July 2002 (previous imputation system applied from 1987)

11. Taxation of individuals
The following rates for 2015–16 applied from 1 July 2015.
Also add 2% Medicare levy and 2% budget repair levy to income over $180,000
Taxable income
Tax on this income
0 – $18,200
Nil
$18,201 – $37,000
19c for each $1 over $18,200
$37,001 – $80,000
$3,572 plus 32.5c for each $1 over $37,000
$80,001 – $180,000
$17,547 plus 37c for each $1 over $80,000
$180,001 and over
$54,547 plus 45c for each $1 over $180,000
Plus there is the Medicare levy of 2%
Temporary budget repair levy on taxable incomes over $180,000 2%

12. Effect of dividend imputation on shareholder
Company level
Taxable income $1,000
Company 30%
After tax income paid as div $700
Shareholder Ms A 49% B Pty Ltd 30%
Level – different tax rates
Dividend
Imputation credit
AY 1,000 1,000
Tax
Offset (300) (300)
Tax payable (excess) (Nil)
I am using the top marginal tax rate for the individual shareholder –
Any excess is available to reduce tax payable on other income and from 1 July 2000 can be refunded

13. Conclusion
Any Questions or Comments?
Thank you