Simplifying taxation through personal companies
Companies have these advantages to encourage investment and promote growth.
However, one might argue that this should apply to individuals, too.
Imagine if every individual automatically owned a “personal” company (i.e., at birth I would have been made sole director of Thomas Widmann Ltd.), and all their work took place through their company (it would be illegal for companies to employ people rather than other companies). In this scenario, everybody would need to decide when to take profits out of their personal company instead of investing the money (which would be tax-free).
With the move away from direct employment towards self-employment, this is increasingly becoming a reality for a large number of people, so perhaps it would be worthwhile making this approach universal.
After this change, it would be possible to completely abolish income tax, because employment would then always an issue between two companies, and all that would be needed would be company taxation and taxes on withdrawing profits. I guess many people would let their personal companies own their house and their car and let their personal company provide free meals to its employee in order to minimise tax and VAT, but that would be a good thing as it would just be levelling out the playing field (which is currently distorted in favour of companies and rich people).
At the moment, most rich people have companies (or charities) to lower their tax bill, so giving everybody a VAT-registered company would basically just give normal people the benefits that the rich currently enjoy.
Excellent idea.
Rob Scovell liked this on Facebook.
It’s not just for ‘the rich’. Most middle class professionals in NZ do this. Their work is done through their company. Their house is in a family trust to protect it from personal liability issues: if you’re made bankrupt because a client goes belly up before paying you, your children won’t lose the roof over their head. They only take out of the company what they need to live on. The advantage is that it encourages investment and professional development rather than just frittering money away on luxuries. In NZ you’re not allowed to use company money for personal things like food or childcare: there are strict rules which are enforced by accountants who are personally liable if entities are used for tax avoidance. Tax avoidance (not just evasion) is illegal in NZ.
You would still need income tax for money taken out of your personal company.
You could call it income tax, but given it can only happen a payment from your own company, it wouldn’t be income tax as we know it.
Normally, directors and managing officers of limited companies are not personally liable for company debts.