​Purchasing an Existing Business with Personal Funds

Posted by Cory List on 1st May 2014

Purchasing an Existing Business with Personal Funds

When people make massive purchases, like in the case of buying a business, it does not matter how much money they have on their personal account, they usually go through bank financing to make things more official.

Some people, however, would choose to go the other way. If they can afford it, they will get the money from their own bank accounts and it will all be a different business altogether. Of course, there are advantages and disadvantages to using your personal funds for such a transaction. If you are thinking of going this route for your business, you can take note of the following information:

  1. Since the money you are using is coming from your own funds, you have already paid tax for it before, so you do not have to pay additional taxes for the transaction you make with it. Note, however, that this tax exemption is not extended to GST or goods and services tax.
  2. Once the business is running and begins to make profit, you have the option to pay taxes in various ways. You can pay at the reduced personal rate if you are drawing a wage, you can pay using a dividend or you can pay the company rate. Under the company rate, the taxes will be classified under company expenses, but wage or dividend arrangements will render it a personal expense.
  3. Even though you have put some money into the company, the company does not owe you money. If you wish to borrow some amount from the company, you can only get it from spare income, with a 30% company tax attached to it. This means that your payment arrangements will follow the same system, unless you make specific arrangements to make things easier when you setup the business.
  4. If in the end you want to get your investment back from the company, you can sell it. When you sell it, the initial investment will be tax free so you only cover taxes for any extra income you derive from the sale. Note that it will be deemed a capital loss if you sell the company for less the amount that you paid for it. It is a loss that you can never gain back.
  5. Other tax benefits to this would be the 50% deduction on capital gain and the further 50% deduction you receive once the business exceed operations over a year. This deduction is applied when you decide to sell the company.