GETTING PAID FROM YOUR OWN BUSINESS

Which is the most tax-efficient? Salary? Perks? Dividends? It depends...

- STEVEN JONES

BACK WHEN I was still running a full-time accounting and tax practice, one of the questions that my clients asked most frequently was how they could be remunerated from their business in the most tax-efficient manner.

Now make no mistake-if income is earned, there will be tax to be paid. To do otherwise would be tantamount to tax evasion. That said, there are some planning opportunities available to business owners that are legal, legitimate, and can certainly save some tax for the business, its owners, or both if structured correctly.

For this kind of tax planning to work, there needs to be a degree of legal separation between the business and its owners-in other words, they need to be separate legal entities. This would therefore rule out sole proprietors and partnerships, given that the owner(s) of the business are taxed on the profits in their personal capacity anyway.

However, if your business is housed within a separate legal entity such as a private company, opportunities arise from the fact that corporate structures are taxed differently to individuals.

One obvious difference is that companies are taxed at a flat rate of 28%, while individuals are taxed on a sliding scale based on their taxable income at rates ranging from 18% to 45%. Understanding how the different tax structures work could nable you to structure your remuneration in a tax-efficient manner.

This article is by no means an exhausttive list of all tax-planning opportunities available to business owners, but is presented as a starting-point for opening up discussions with your accountant or tax practitioner.

Salaries

If you've been slaving away around the clock to get your company off the ground, it's reasonable for you to want to reap the fruit of your labours.