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As an employee in a business, often there are perks that can come with the job. A company car, fuel money, perhaps some technology to help make things easier. Small business owners however have to be a lot more mindful of how they use the money from their business.
Any money or assets that a business has earned or possesses, is solely the property of that business. That means that there are numerous issues that can arise from dipping into these company funds.
As a business owner, it’s important to keep records and correctly report transactions if using company money or assets (e.g, company car). These can include instances such as
- taking money out of your company for yourself or your family
- receiving money from it (for example, as a director, shareholder or an associate)
- using your company’s assets for private purposes.
For small businesses, this can be easily done through:
- Salary, wages or director’s fees
- Repayments of a loan you have previously made to the company
- A fringe benefit, such as an employee using a company car
- Dividends (formal distribution of the profits)
- A loan from the company
If a business does not report correctly or keep appropriate records for transactions, an unfranked deemed dividend could be included in their assessable income (this is a bad thing) during tax time.
Here are some easy ways to avoid being put into this situation:
- Always ensure that any company money issued is accounted for as per the previous categories.
- Have a separate bank account for the company to pay for company expenses (not private ones!)
- Keep proper records of all company transactions
- Repay any loans from the company before the tax return date to avoid unwanted income tax