[Question] Tax on Second Income

[rfnel]

Hi Everyone

My scenario is as follows; I am employed full-time and I am also a member of a CC.

My partner and I have decided to pay ourselves a salary from the CC. I've recently heard, however, that a second income is taxed at 28%. I'm not sure whether or not this is true. Is there an alternative way of paying ourselves from the CC? Which approach would you recommend to minimize tax on my income while still staying within the law?

[Mark Atkinson]

Hi Riaan,

Basically, whatever salary you are paid out by the salary is added to your income in terms of your personal income tax assessment. You are taxed at the percentage which matches the tax bracket you fall into (different levels of income).

The CC, then, claims your salary as a tax deduction. The CC is taxed at 28% of its taxable income (income less deductions) while you are taxed in your personal capacity according to your tax bracket.

The only thing I can think of at this point (it's been a while since I've concentrated on tax) in theory would be interest on capital payments from the CC to yourself. This would alleviate some of the tax burden because individuals are entitled to an annual interest exemption. I'm not sure whether that works in practice, though.

[rfnel]

Thanks Mark. That was my understanding as well; the CC is taxed on income - expenses (including salaries) and members are taxed as with any other salary (i.e. according to their respective tax brackets).

When someone said that a second income is always (or at least, that was my interpretation of what I heard) taxed at 28% I was more than a bit confused and I wanted to get clarification on it.

[BusFact]

When someone said that a second income is always (or at least, that was my interpretation of what I heard) taxed at 28% I was more than a bit confused and I wanted to get clarification on it.

Never heard that. Does not sound right at all. Marks explanation is far better.

[Dave A]

The only thing I can think of that this might have been confused with is the PAYE deduction employers should be making on part-time employment income*, which is a flat rate of 25%.

Of course that doesn't affect your ultimate liability when it comes to assessment time.

*fairly complex set of critreria involved which I won't go into detail here.