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I think you need to... 04/02/2017, 22371812

  1. I think you need to think about income and profits separately. For simplicity, let's assume it's an Australian company and your cousin is the sole shareholder. Your cousin deposits $10k in the company as working capital.

    From that $10k, company profits are generated for the year and the company will be taxed at the Australian company tax rate (30%). The company decides to declare a dividend of $1,000. Your cousin receives that dividend and will be taxed on it at his own personal tax rate.

    Because the company itself pays tax, the dividend will contain franking credits. Franking credits represent the taxes paid by the company on earnings that have been distributed as dividends. These can be claimed back from the Tax Office (an Australian idiosyncrasy to prevent double taxation of company dividends).

    The fact the $10k (and any ongoing contributions to working capital) is sourced from post tax income is irrelevant. It's no different to buying shares yourself from your own post tax income. You are still going to get taxed at your personal tax rate unless you get tricky with family trusts etc.

    Hope this helps (and that I have got the salient details right! I hate tax, terrible at it!)

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