Thanks Apocalypse.
Let me rephrase my question again as I am still not clear.
Say I buy the car through the company structure outright and pay in cash from the company fund. Probably some numbers will reveal better what I am asking.
Let's say a car is 55k with GST included. Lets also say that I will use this car for 50% business use. Before GST it is 50k.
Since the 50% business allowance claim does not have to be only on the business use part of the vehicle, I can claim 50% depreciation in the first year irrespective of my business use % of the vehicle. That is my business can claim 25k is depreciation first year just from the 50% small business criteria.
That still leaves 15% depreciation left for the car for first year use (using simplified depreciation rule). Since I am using the car for 50% business use, my business can claim another 7.5% of 50k=3.75k.
So the total business depreciation for first year is (25+3.75)k.
Does this also mean that I should pay 50% of the GST from my post-tax $. And the rest 2.5k GST can be claimed by the company?
Please enlighten as we actually need a car and we are about to get one soon.
Does this process allow me to not pay FBT?
What's the other way I do not have to pay FBT if not like above and not going into a lease?
Alright. Let me point out I am not an accountant so I really have NFI...but this is what my research suggests.
What you outlined is accurate, I believe, if the purchase is made privately but through a business ABN, and apportioned approriately for business/private use. But through a company it seems to work a bit differently. You need to consider the depreciation aspects and the fringe benefit aspects separately. And they may well appear to bear little similarity to each other!
OK. The company buys the car for the company's business. This is a 100% business capital expense. Using your 55k example (and ignoring the fact that some of the costs of buying the car - eg rego/stamp duty aren't capital in nature and don't actually form part of the cost base...) 5k back in GST straight away, 50k cost base for depreciation.
50% deduction for the investment allowance, 15% for the first year under SBE concessions = 25000 + 7500 = 32500 deductible, leaving a 'closing value' for the car of 42500. If you purchase before June 30, that's in the 2008/2009 FY. For 2009/2010, your depreciation claim would be 30% of 42500 = 12750. Other operating costs such as fuel, insurance, etc are just straight deductions (ex-GST). That's the INCOME TAX side of things. If the vehicle is used 100% for business purposes (or for the odd little exempt purpose) that's the end of the matter - no FBT liability to consider.
But if there is some private use - this is where it gets tricky. And probably why your accountant said its easier through a non-company ABN.
Now remember - this is just the way I see it. I could be totally wrong.
If there is private use of a company/business asset, this generally gives rise to a fringe benefit. Which they tax - generally at a prohibitive amount to discourage the practise (practice?). But there are means to avoid this punitive tax.
With respect to cars, there are basically two ways of doing so - the statutory formula method, or the operating cost method. Statutory formula is better when there are a high number of km travelled, but with a low business use proportion. Operating method is better if the relative private use is low. At a 50:50 split I don't know which is better - it would depend on how many km the vehicle travels over the year.
Now - speaking of years - FBT is all calculated around the fringe benefit year - April 1st to March 31st. So the figures you use when performaing calculations for assessing a FBT liability may well be DIFFERENT to the ones you use when calculating values for income tax purposes.
For reference, I would suggest consulting
http://www.ato.gov.au/businesses/content.asp?doc=/content/fbt_guide.htm and specifically Chapter 7.
The statutory formula is easier to use. But it ignores any differentiation between business and private use, and ignores any costs like fuel/etc. It basically gives you a "taxable value" simply by multiplying the cost base of the vehicle by the appropriate percentage, which depends on your mileage
Total kilometres travelled during the year
Statutory percentage
Less than 15,000 = 26%
15,000 to 24,999 = 20%
25,000 to 40,000 = 11%
Over 40,000 = 7%
So if you travelled 20000km for the Fringe Benefit year, your percentage would be 20%. 50k x 20% = 10k. This is your taxable value. If you do nothing, the company will be required to remit FBT, which means 'grossing up' this value (multiplying by 2.0647) and then applying the FBT rate of 46.5% to the result. About $9600. This is on top of all the other running expenses the company has already coughed up for. If the car was cheaper, it would be less. If the mileage was higher, it would be less. But, If you made a personal contribution from your own pocket of 10k that would reduce the taxable value to zero, and remove the FBT liability. This is generally the better way to do things, and there are numerous "examples" demonstrating the net benefit if you google.
The operating cost method is more complex, but gives a better result with higher business use. The taxable value is is the 'private use' percentage of the following: actual running costs like fuel, rego, insurance, maintenance, etc; a 'deemed depreciation' figure, and a 'deemed interest' figure
http://www.ato.gov.au/print.asp?doc=/content/76140.htm. The deemed interest I don't really understand and I think is there just to fudge the figures upwards a bit to discourage private use. Anyway.
Actual operating costs you simply tally up (for the Fringe Benefit year period - not financial year period). Deemed depreciation uses the standard diminishing rate for cars, which is now 25%. Remember this is depreciation figure is only for the purpose of calculating the FBT liability. It has NO bearing on the depreciation you may claim on the company's income tax side of things. Deemed interest is the deemed depreciation rate times the statutory interest rate (currently 5.85% as per above link). Lets say fuel/rego/insurance/etc for that period was $4000.
Deemed depreciation = 50000 x 25% = 12500
Deemed interest = 12500 x 5.85% = 731
4000 + 12500 + 731 = 17231
And the taxable value is the personal use percentage of that figure - 50% in the example, = 8615.
So if you make a private contribution of that amount, it will reduce the value to zero, with no FBT liability.
Simple, huh?
