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Thread: Registering a company for investment purposes

  1. #1
    Join Date
    Oct 2014
    Location
    New Zealand
    Posts
    1

    Default Registering a company for investment purposes

    Hi everyone,

    I have a bit of a long winded scenario that I wish to sketch but seeing as it will determine the next 15-20 years or perhaps longer of my investment strategy I would rather not take too many shortcuts.

    My partner and I wish to reach our definition of financial freedom in the next 10-20 years, we are both in our late 20’s and we both earn enough to fall in the 33% tax bracket. We wish to register a company which we want to use for various things during its lifetime, the emphasis here is doing things right from the very start to avoid pitfalls later on. Our finances are currently set up so that we can save about $5000 a month but we only want to invest $1000 in the company for the first year or two as we want to pay off personal car debt and save up for a deposit on our first house, all our monthly expenses are covered by one of our salaries (this will include a monthly $3000 home loan payment). This is roughly what we want to achieve during the companies lifetime:

    Years 1-2:
    - Buy initial smartFONZ shares worth $2000 and then make monthly (cost free from my understanding) contributions of $1000 using the regular savings plan as well as re-investing all dividends paid
    Years 3-10:
    - Continue buying smartFONZ if the NZ market is performing steadily
    - Buy 2 to 3 freehold investment properties for capital gains but more for monthly rental income to facilitate cashflow (note: probably will not be in auckland or wellington for obvious cost issues)
    - Buy specific shares or actively managed funds to introduce more risk but better returns than smartFONZ
    Years 11+
    - Continue smartFONZ
    - Buy more investment properties if feasible
    - Buy more specific shares or actively managed funds
    - Start actively trading through the company by either buying a franchise or starting our own business (yes a business within our business but I’m sure you understand what I mean) or by doing both (I might run the franchise and my spouse the business etc.)

    So based on our plan, here are some questions that I have:
    1. First thing, is registering and using a company the right fit for all our plans?
    2. I have read about Look Through Companies (LTC) but they don’t seem viable because we are already in the 33% tax bracket and would not offer any other advantages?
    3. How easy is it to register your own company? Is it worthwhile using a service like http://www.registeracompany.co.nz ?
    4. Does a company need a registered accountant or can we do the books ourselves?
    5. How does financing and taxation work for the company?
    5.1. How can we pay money from our personal accounts into the companies account to finance it while we are working fulltime and is this taxed?
    5.2. How can we withdraw money from the company back into our personal accounts if needed and how will this be taxed?
    6. We would like to do everything ourselves if possible but if not would anyone recommend using a financial advisor or should we rather just focus on getting a professional accountant or both?

    I have been scouring the internet for information relating to my specific scenario but have come up short specifically with regards to a company buying shares in another company so any links or reference material you use to prove a specific point would be very much appreciated.

  2. #2
    Join Date
    Aug 2011
    Location
    Kaipara, New Zealand
    Posts
    257

    Default

    It sounds to me like you might want to look into a trust, but before I made any decisions I would find a qualified CPA that you like and trust and hire him/her to advise you.

  3. #3
    Join Date
    Oct 2014
    Location
    New Zealand
    Posts
    3

    Default

    Hi Bob

    I have put some brief answers to your questions below. After reading your plans there are some very important things to consider. You would certainly want to separate your investments and your business. By having your investment properties and shares in a trust they are safe guarded. This protects from any potential loss from the business or franchise.

    You also need to be careful with buying shares. Because if the IRD proves they are purchased for the reason of resale any capital gains will be taxable. It's important to do a business plan and some kind of evidence to prove otherwise.

    If you want I would be happy to discuss with you over a coffee or a beer . My details are on the signature.

    1. First thing, is registering and using a company the right fit for all our plans?
    This is a quite complicated scenario and there is benefits of setting up a structure which includes both a company and a trust.
    2. I have read about Look Through Companies (LTC) but they don’t seem viable because we are already in the 33% tax bracket and would not offer any other advantages?
    LTCs are only beneficial if you are making a loss.
    3. How easy is it to register your own company? Is it worthwhile using a service like http://www.registeracompany.co.nz ?
    Registering your own company is not to difficult. I would not recommend using registeracompany as their fee is very high. The registration cost is $160.22 so they are making nearly $200 for the setup. We can certainly do the setup for $100.
    4. Does a company need a registered accountant or can we do the books ourselves?
    I would recommend using an accountant. Especially for the structure setup and getting this right from the start is important. Also preparing the tax returns I would recommend using an accountant, there are a lot of tricky tax rules which are hard to follow. Also the paying of dividends with imputation credits and tax minimisation is something really only accountants understand. We could do this for a very competitive price.
    5. How does financing and taxation work for the company?
    This can be difficult to answer simply. The taxation will be spread out between the structure. Your accountant will help you to pay the least tax possible.
    5.1. How can we pay money from our personal accounts into the companies account to finance it while we are working fulltime and is this taxed?
    This will not be taxed, however getting money out of the company is a different situation.
    5.2. How can we withdraw money from the company back into our personal accounts if needed and how will this be taxed?
    This will be done via dividends and imputing the tax paid by the company.
    6. We would like to do everything ourselves if possible but if not would anyone recommend using a financial advisor or should we rather just focus on getting a professional accountant or both?
    A financial adviser could be a good idea if you are planning to investment heavily in the share market. Without an accountant the structure would be very hard to setup and maintain. There is also the risk doing something incorrect and then paying for it heavily in the future if audited by IRD.

    [Edited to remove details - please see forum rules 10 and 12. http://www.enz.org/forum/showthread.php?t=40236]

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