Determining owners salary

[Marius1975]

Thank you JLI, that sucks, bleh. The TAX is crazy, even the TAX on our profits are ridiculous but we don't want to start creating extra expenses simply for the sake of making less profit to get the TAX down. The only sensible expense is probably higher salary then..

[CLIVE-TRIANGLE]

Hi Marius. The company's effective tax rate is 38.8% (maximum dividends)
So while your effective rate on salary is less than that, paying salary makes more sense. Once your effective rate equals that of the cc, then it's another matter.

[Basment Dweller]

This is an interesting topic...dividends are expensive to extract so what strategy do you take with your business?

1.) If you don't spend the money on expenses, then it gets taxed away anyway
2.) Expense away all your money and make no profit
3.) Declare a profit at 28% and reinvest the money back into the business
4.) Make a large profit, get stiffed by SARS 38,8% and have more cash in your personal bank account but have less money for the business to grow

[Justloadit]

There is a thing called a loan account. You make a book entry paying you wages, you pay the PAYEE, alternatively provisional tax, and it remains in the company as a loan by you to the company. The company then always runs at cost or a loss, depending on your preference, but has working capital. You can take the capital out when ever it is liquid and diminish the loan account, with out then having to worry about any tax, as this is already taken care off.

The only disadvantage is the day you wish to sell the company, the purchaser may see the business as a bad investment because it makes no profit. This is where you have to show the purchaser where the profit of the company lays.
The other disadvantage is that this is only good for small companies, or sole owners. When partners are involved, you need to have a memorandum of agreement that payments as wages are proportional to share holding, and that there must be an agreement by all when the loans are repaid, or else every one pulls there money out and the company can not trade due to lack of capital, or alternatively only one shareholder keeps the company alive with his loan account.