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  • #967574
    ilic
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    Hi all, i’m glad i found this forum, very helpful information so far.

    I know this question has been raised before but i’m hoping someone can clarify further.

    I run a small business, i’m a unit trust now trading as a pty ltd (I think, sorry i can never get my head around this, it was so much more simple when I was a Sole Trader!). Essentially, at the end of the financial year, all business profits get distributed between myself and my wife to minimise tax.

    Now, we’re looking to make a healthy profit this financial year and that means paying a fair bit of tax, i’m looking at purchasing a car through the business to reduce our profit and pay less tax. I guess what I want to know is, is that a good idea? Say we are set to earn $50K net and i buy a $30k car, that means the business only earns 20K and I only pay tax on $20K?

    If the car is used for 80%+ business use, does that mean i can run all expenses and the purchase price through the business?

    Thanks in advance.

    IC

    #1027264
    jasonm
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    You can only claim a percentage of the cost and how it is determined depends on the km you do and what type of vehicle it is I think / depreciation, that sort of thing.

    Best to speak to your accountant.

    #1027265
    ray_223
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    … and you can only depreciate the value of the car over the life of the asset.

    It would be advisable to see an accountant to get the best answers.

    … nice problem to have btw ;)

    #1027266
    James Millar
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    There is a big misconception that buying fixed assets (including cars) at financial year end is a great tax strategy and that it will make a substantial difference to your taxable income.

    Standard depreciation is pro rated on a day’s basis which is not that helpful however there are some other SME accelerated methods that make it slightly more advantageous to buy before year end (and that are not pro rated).

    Your accountant should have been onto this with you prior to 31 December – the 50% small business investment concession would have helped you greatly in offsetting that taxable income.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1027267
    jasonm
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    JamesMillar, post: 32279 wrote:
    – the 50% small business investment concession would have helped you greatly in offsetting that taxable income.

    Oh, how I wish I was in a position to take advantage of that.

    #1027268
    CruzAccountant
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    It might still be worth buying as you get can get the GST back.

    Have you also thought about leasing?

    #1027269
    King
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    or put money into super….I think that reduces your tax liability as well.

    #1027270
    ilic
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    Thankd for the reply guys, i’ve seen the accountant and yes, the above posts are pretty much spot on.

    My idea of instantly reducing the companies net profit by buying a car is way off! If i buy a car in June this year for $50K, then i’ll get maybe a few hundred dollars as a tax ofset for this financial year and then about 18% over the next 5 years or something like that.

    So, looks like pumping some money into Super is a good way to bring my taxable income down but apart from that, I dont really have any other ideas. Maybe buying some equipment and office supplies to last me a while too might help a little.

    Any other ideas?

    #1027271
    MattR
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    The Small Business Entity concessions include the Pooling of depreciable assets.

    In the General Pool you can claim a 15% deduction for assets bought during the year and in the following year its 30% (diminishing). So if you bought an asset for $10,000 on 30th June 2010, in the 2010 tax return, as long as you were eligible, you could claim $1,500 as a deduction under pooling.

    #1027272
    Burgo
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    Why buy when you can get 100% deduction by leasing. Yes I know you end up paying more for the vehicle but by golly miss molly isnt it better to claim 100% and have cash flow.
    Minimise your tax by all means but dont think about NOW think about next year and the years after. This year may be good , next year cant tell year after who knows.
    ” Yesterday is history , tomorrow is a mistery but today is the present …enjoy.
    Lease…….

    #1027273
    mtpocket
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    I don’t mean to hijack the thread, but what about building up some inventory for the business? How is that working with the tax?

    #1027274
    CruzAccountant
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    Burgo, post: 36623 wrote:
    Why buy when you can get 100% deduction by leasing. Yes I know you end up paying more for the vehicle but by golly miss molly isnt it better to claim 100% and have cash flow.
    Minimise your tax by all means but dont think about NOW think about next year and the years after. This year may be good , next year cant tell year after who knows.
    ” Yesterday is history , tomorrow is a mistery but today is the present …enjoy.
    Lease…….

    Patrick, you can only claim 100% if your business use is 100%. Or in your case, if you have a ute or work van and carry your cleaning equipment around, then it’s 100%. The example given was of 80% business use.

    #1027275
    jasonm
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    ilic, post: 36596 wrote:
    Any other ideas?

    You could pay yourself more, that’ll reduce your company’s profit.

    Then of course you may have an issue with your personal taxation level

    #1027276
    MattR
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    mtpocket, post: 36626 wrote:
    I don’t mean to hijack the thread, but what about building up some inventory for the business? How is that working with the tax?

    Unless you are a Small Business Entity and the movement in inventory is no greater than $5000 from one year to the next, then an increase in inventory is simply not deductible, it just moves to the Balance Sheet.

    #1027277
    YoungNomad
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    I lease my car through the company – purchase cost was $240,000, lease payment is $3,950 per month, fuel $200 per month, maintenance $500 per month. EVERYTHING I do with / to the vehicle comes off the taxable earnings of the company.

    In no way does it “pay” for itself, but if you’ve got expendable income, it’s something you can look at. It makes it easier to justify to the other half anyway ;)

    At the end of the day, a car is a depreciating asset (some will even argue that it’s not an asset), so buy at your own discretion.

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