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Director's drawing

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cutejesey
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Director's drawing

Postby cutejesey » Thu, 16 Mar 2017 9:52 am

I'm the director cum shareholder for he company. Just check how to account for director's drawing? Can I just prepare the director resolution and resolved it as company expenses?

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Re: Director's drawing

Postby Strong Eagle » Thu, 16 Mar 2017 11:58 am

You can receive compensation in one of three ways. You can pay yourself a salary. This will be set by a directors resolution at an AGM/EGM. If you pay a salary, it is subject to CPF and personal income tax.

You can pay a director's fee, again, subject to a AGM/EGM resolution. As with salary, your AGM/EGM resolution can specify one time or ongoing. Directors fees are subject to income tax but not to CPF.

You can pay yourself a director's bonus, again through an AGM/EGM resolution. Bonuses are treated as salary and subject to both income tax and CPF, as applicable.

Salaries, bonuses, and directors fees are all expense items.

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Re: Director's drawing

Postby cutejesey » Fri, 17 Mar 2017 6:13 pm

Currently this drawings sit in balance sheet, should I declare dividend to offset instead? Will it tax in personal income tax?


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Re: Director's drawing

Postby Strong Eagle » Mon, 20 Mar 2017 10:34 pm

cutejesey wrote:Currently this drawings sit in balance sheet, should I declare dividend to offset instead? Will it tax in personal income tax?


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I don't understand this line: "Currently this drawings sit in balance sheet".

Here is how things are supposed to work. Let's say that at a EGM/AGM you declare a directors fee of $2,000 to be paid effective March 15.

If you have cash in the bank to pay the directors fee, you debit an expense account on your P&L called "Directors Fees Paid", and you credit you Cash account on the balance sheet.

If you don't have the cash to pay the directors fees, then you still debit the "Directors Fees Paid" expense account but you must then credit a Liability account on your balance sheet, "Directors Fees Payable". When you do get the cash to actually pay the directors fees, you debit your Directors Fees payable account and credit cash.

Is this what you are talking about with "drawings sit in balance sheet"? Note that directors fees, salaries, and bonuses are all taxable at the time they are to be paid, regardless of whether the director actually gets cash or not.

You cannot "offset" salary owed with dividends if you have a liability account as in the example above. If you wanted to pay yourself dividends instead of a salary or fees, then you would file a document in your company's minutes stating the you relinquish all claims to salaries or fees payable to you.

Once that is filed, you then debit the Directors Fees Payable account and you credit Other Income.

Now you are free to pay dividends. Paying dividends means that you have cash in the bank; further that you will be paying dividends out of retained earnings... it is illegal to pay dividends out of paid up capital.

To pay the dividends, you need to make a couple of balance sheet entries. Let's start with a real simple balance sheet.

Assets
Cash in bank: $5,000

Liabilities
Accounts Payable: $1,000

Net Worth
Paid up capital: $1,000
Retained earnings: $3,000
Dividends paid: $0
Total net worth: $4,000

Total liabilities and net worth: $5,000

Since you have $3,000 in retained earnings you could pay yourself as much as $3,000 in dividends. Let's say you pay yourself $2,000 in dividends. Then you would credit Cash for $2,000 and debit "Dividends Paid" for $2,000.

You can see that once you take the cash out in the form of dividends, you now have $3,000 in assets, all cash, and your total net worth account becomes $2,000.

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Re: Director's drawing

Postby cutejesey » Tue, 21 Mar 2017 1:00 am

Thank you for detailed explanation Strong Eagle


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aster
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Re: Director's drawing

Postby aster » Mon, 03 Apr 2017 10:57 pm

Strong Eagle wrote:If you pay a salary, it is subject to CPF and personal income tax.


Are EP holders still able to exempt themselves from CPF or have things changed recently?

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Re: Director's drawing

Postby Strong Eagle » Mon, 03 Apr 2017 11:21 pm

aster wrote:
Strong Eagle wrote:If you pay a salary, it is subject to CPF and personal income tax.


Are EP holders still able to exempt themselves from CPF or have things changed recently?


EP holders were never required to make CPF contributions but they could voluntarily make contributions if they wished. It was 2005 or 2006 when the rules changed and EP's can no longer make even voluntary contributions... PR's and citizens only.

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Re: Director's drawing

Postby aster » Mon, 03 Apr 2017 11:30 pm

Thanks for the update.

Interesting how the option is no longer available as it could have been a good way to put away some money if someone was planning on staying in Singapore in the long-run and going for PR-status.

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Re: Director's drawing

Postby sundaymorningstaple » Tue, 04 Apr 2017 1:03 pm

Best mate did just that (Kiwi planning engineer). I've known him for close to 30 years now. He worked on the Asia Badger Mobile Refinery upgrade for around 3 years and back then as noted CPF contribution were required for EP holders. Then he left to Indonesia & M'sia for several years before coming back to Singapore for the Shering-Plough project. While here that time He applied for PR and received it (he'd always left the CPF in situ and while he's had to give up his PR again as he went back to Indo for 3 years and VN for a year, he's still leaving those funds in CPF drawing nice interest rates.

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Re: Director's drawing

Postby PNGMK » Tue, 04 Apr 2017 1:08 pm

aster wrote:Thanks for the update.

Interesting how the option is no longer available as it could have been a good way to put away some money if someone was planning on staying in Singapore in the long-run and going for PR-status.



Most EP's I know who did pay into CPF were far too bloody stupid and cashed it out the minute they left Singapore to spend on Range Rovers etc.
I have gay, black, Asian friends and then JR8.

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Re: RE: Re: Director's drawing

Postby ecureilx » Tue, 04 Apr 2017 7:38 pm

PNGMK wrote:Most EP's I know who did pay into CPF were far too bloody stupid and cashed it out the minute they left Singapore to spend on Range Rovers etc.


and those who contributed and subsequently got PR had a decent starting balance as New PR ;) vs starting with Nil balance ..

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Re: Director's drawing

Postby aster » Wed, 05 Apr 2017 1:47 am

sundaymorningstaple wrote:While here that time He applied for PR and received it (he'd always left the CPF in situ and while he's had to give up his PR again as he went back to Indo for 3 years and VN for a year, he's still leaving those funds in CPF drawing nice interest rates.


Smartest decision ever, especially with it being such a great savings vehicle.

On a side note, if he was PR and had to give it up, does it make regaining PR status any easier in the future should he choose to return to Singapore for longer?

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Re: Director's drawing

Postby sundaymorningstaple » Sat, 08 Apr 2017 11:08 am

I think the fact that he has always been a project control engineer on construction projects and moving to various locations/companies but maintains long term ties here (driving license, CPF account, bank accounts & owning a condo here as well - on which he is paying taxes as he's renting it out here so pays non-resident taxes on the net) may well allow him to regain PR in the future should he return to Singapore. (he also has triplet male sons as well who are only 5 years old). :-k


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