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balancing car expenses in business

Discussion in 'Accounting, Tax & Legal' started by srb, 7th Feb, 2010.

  1. srb

    srb New Member

    Joined:
    7th Feb, 2010
    Posts:
    1
    Location:
    Sydney, NSW
    Hi All,

    I am in business with a partner of which we each own a 50% share. In Dec last year I took advantage of the 50% small business tax deduction incentive to purchase a new car. The car will be 'owned' and registered by the company and was purchased via a chattel mortgage. My business partner also has a vehicle but it is privately owned and has a lease over the vehicle.

    We plan to keep effective personal P&L's on running expenses/lease payments incurred on each vehicle so one person is not incurring more expenses than the other and all payments balance out EOY. If there are any discrepancies then one of us will be effectively in credit.

    My question is, since I've purchased my car through the company to take advantage of the initial 50% tax deduction, plus ongoing depreciation, should that be taken into account with regards to my overall position? I believe it should as with a purchase price of $44,000 the 50% deduction alone will be $22,000 * 30% = $6600. This is $6600 the business wouldn't have seen (via tax deductions) without me putting the car through the company and think this should be taken into account when balancing our expenses and payments on vehicles at the end of the year, there is also the the ongoing depreciation of the vehicle.

    e.g.
    If the yearly cost to the company on my vehicle lease and running costs are $15000 then my year one net position is $15000-$6600 = $8400.
    If the yearly cost to the company on my business partners vehicle lease and running costs are $15000 then his year one net position is $15000.
    Hence I'm effectively $6600 in credit at the end of year one.

    I guess my simple view is if this doesn't benefit me then l end up paying for a lease (with company funds) on a vehicle at full price and don't see the benefit of the depreciation, it is just absorbed into the company. I may well have bought the car personally and taken out a lease to be in the same position as my business partner.

    We are seeing the account at the end of the week but wanted to understand my position a little better before then.

    Bit of a marathon story but any thoughts or feedback would be greatly appreciated.

    Thanks.
    Shane.
     
  2. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    Your "partner" is not a partner since it seems you have a company to conduct your business ?

    Has your "partner" novated their car lease to the company ? Or else, does the company pay their private car expenses ?

    Your car is owned by the company and FBT is a possibility unless you keep a log book to demonstrate zero private use.

    Cheers,

    Rob
     
  3. Superman

    Superman Well-Known Member

    Joined:
    6th Nov, 2007
    Posts:
    343
    Location:
    Gold Coast, QLD
    As the additional tax break is saving the company tax , you may need to work out an adjustment to your remuneration package.

    That would be the only way to balance things out.

    Talk to your accountant (hopefully you and your business partner use the same person) and come up with a strategy so you personally get the tax benefit.

    SM
     
  4. chris_qld

    chris_qld Active Member

    Joined:
    21st Jan, 2008
    Posts:
    44
    Location:
    brisbane
    Hi, Rob:

    I'm a bit confused here. If a car is owned by a company and if it's for business only, do you still have to keep a log book? ATO's website lists three examples, sole trader, partnershio and company (Home-based business), it doesn't mention whether Pam (company) should keep a log book, although it does mention about FBT if it's used for private purpose. I guess the ATO is saying you need to record the km for private use for FBT purpose.

    Cheers
     
  5. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    FBT applies to all employers.

    To establish that a car is available only for business purposes WITHOUT A LOGBOOK, the ATO insists there must be a consistent and enforced policy to deny private use.

    They recommend a notice be posted inside the car, along with periodic reminders via the employee notices and published rules.

    There are certain exemptions for panel vans and utes that are only used privately for home/work travel plus minor and infrequent private use.

    Of course, if home is a place of business then a car will be deemed to be available for private use ... unless you have a logbook or it fits within the exemption mentioned above !

    Cheers,

    Rob