Paying yourself a salary

[Basment Dweller]

There's a thread in here somewhere about director's Emoluments and paying salary vs dividend but I didn't quite understand it so am starting a new one.

So my rental business is starting to generate money and I want to keep track of what the company owes me for the services I provide the company.

I am a director, shareholder and trustee of the trust that holds shares in this company and I provide services i.e. collecting rentals, management, acting real estate agent etc.

I'd like to charge the company 5% for closing deals, i.e. facilitating lease agreements and property developments. I then want to charge 5%/month management fee for any unit that is rented. So instead of drawing a fixed salary I only get paid when something is generating money.

Since the business is starting up, I can't draw remuneration just yet as I'm ploughing the money back into furnishing the units, paying agents etc...but I'd like to keep track and withdraw the cash when we break even after month 4-5...

So how do I go about this?

Do I invoice the company and register my remuneration as an expense? Do I draw up a contract and employ myself and include PAYE UIF SDL?

[dellatjie]

I would think the invoice-way is the best way to go, as you can deduct your expenses incurred in the production of income from your taxable income. Would love to hear a few other people's opinion first though.

[Basment Dweller]

I would think the invoice-way is the best way to go, as you can deduct your expenses incurred in the production of income from your taxable income. Would love to hear a few other people's opinion first though.

This is what I was thinking, just draw up a word document monthly invoice and add it to the rest of my tax deductible receipts. Payment will be made into my personal bank account and added to my taxable personal income.

[Dave A]

You can do a book entry for remuneration (be it salary or directors emoluments) and post it against a loan account to be drawn in cash later.

I'm not entirely convinced there's a benefit in rather raising an invoice. Your expenses incurred for the business can be reimbursed by the company and claimed as a business expense. And if there aren't enough employees in the company, SARS isn't going to see you as an independent contractor anyway.

[CLIVE-TRIANGLE]

The activities that you describe are exactly what a director does! So drawing up contracts and invoicing for services are really non events. You already have an employment contract in that the Companies Act regulates your relationship.

You really only have two choices, remunerate the director, or as shareholder, extract profit.

The percentages you mention are fine to use in the calculation of whichever option you opt for, but that is really all.

Personally, dividend extraction has the least administrative and tax hassle, because it alleviates PAYE and UIF registration, monthly returns and so on, and replaces it with dividend returns.

You probably need some specific advise from a professional after a proper analysis of the structure, because it seems both you and the trust are shareholders? The impact of that is that a dividend must be paid to all shareholders in proportion to their shareholding. If that is undesirable then remuneration is the only option, after loan repayment.

[Basment Dweller]

You can do a book entry for remuneration (be it salary or directors emoluments) and post it against a loan account to be drawn in cash later.

This is what I had in mind, since it's a start up business I'll only be able to draw salary in month 5 or 6 so until then I am simply keep track of payments as a loan account.

The impact of that is that a dividend must be paid to all shareholders in proportion to their shareholding. If that is undesirable then remuneration is the only option, after loan repayment.

Not keen on going the dividen route. Dividend is expensive money right? Considering I have to tax profits 28% then what's left is what I can declare as a dividend taxed again at 15% and then my share goes towards my personal taxable income which is taxed again, not sure if I got that right but by the time the money is in my account, it's been taxed three times, plus I now have to distribute to other shareholders (namely the trust) which complicates things further.

I'll chat to my accountant and see if we can go the UIF PAYE route.

[Justloadit]

Just remember that PAYE must be paid to SARS on a monthly basis, whether the money has gone into your account or not. Something to consider, when cash flow is an issue.
Even provisional tax payment must be done twice a year, and when cash is short, this can be a huge obstacle.

[CLIVE-TRIANGLE]

Not keen on going the dividen route. Dividend is expensive money right? Considering I have to tax profits 28% then what's left is what I can declare as a dividend taxed again at 15% and then my share goes towards my personal taxable income which is taxed again, not sure if I got that right but by the time the money is in my account, it's been taxed three times, plus I now have to distribute to other shareholders (namely the trust) which complicates things further.

The dividend is already taxed, so no it is not taxed again in your hands.