2009 "Investment Allowance" for business - golden opportunity or not?

[geoffw]

Thanks Geoff. Could you briefly outline what the benefits of a trust and a company are?

Lukey you're way into professional territory here.

A trust provides asset protection, first and foremost, and has flexibility where the income goes.

I'll leave it to somebody else to outline the benefits of a company. Apocalypse's last post shows some advantages of a company in one particular situation.

Would that suggest that I should keep IPs (and definitely any PPOR) in personal names?

I would keep prperties in a different trust from your business, or in private names. Having IPs in a trust means that you cannot take advantage of negative gearing. However properties eventually become positive, so having in private names can be a double edged sword. A property which is in the name of the highest earner is good when you're forking out, but no good when money is coming in. Also circumstances change. I used to earn a lot more than my wife, now she earns more than me.

 

[Apocalypse]

Very comprehensive explanation there Apocalypse. That pretty much explains the way my wife and I salary package our novated leases for cars through our Government employers.

So far this arrangement has worked out quite nicely and it's great getting a new $50K car every few years and being able to sell the old one pocketing a few thousand dollars cash which is the gap between the residual payout and market value.

However, I now operate a small business in addition to my Government job and I am wondering whether there would be more benefits of buying a car through my business? I am in a medical profession and my accountant has suggested I employ a structure involving a Family Trust for my business income to be able to distribute income to my wife (who is on a lower income) and my baby. Could anyone suggest whether I might be better off getting a car through my business, perhaps even purchased through some kind of trust/company structure and then utilising the "Investment Allowance"? I would still need some kind of loan for a car as our cash is tied up in properties/cash buffer/renovation funds.

Medical profession/Government employer...I smell a PBI...do you work for a hospital or similar and are you salary sacrificing and using the FBT concessions for PBIs?

If you have a small business on the side, it may not be worth the rigmarole of alternate entities - as you can see above how much more complex it can be. One assumes you have an ABN and a business name - this is sufficient to access the 50% investment allowance. Then just claim the proportion of vehicle business expenses through your tax as per normal. Income streaming through trusts/companies isn't necessarily straight-forward when you operate largely generating Personal Services Income - there are rules that dictate that you need to pay yourself fairly promptly and you can't "pay the missus to do the books" when she doesn't have anything to do with it...there are also things like the Entrepreneurs Tax Offset that you may miss out on by choosing an inappropriate structure.

 

[ynnug]

Lukey you're way into professional territory here.

Also circumstances change. I used to earn a lot more than my wife, now she earns more than me.

Sorry not constructive....but could not resist.

This is a nice situation, just the way it should be

 

[brop]

The structure purchasing the asset, whether it be a sole trader, partnership, company or trust must be in "business". The definition of a business is discussed in TR 97/11 http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR9711/NAT/ATO/00001

What about a family discretionary trust whose only source of income is from share/option/CFD trading? My wife and I are trustees for our family trust. we purchased a new vehicle in name of trust two weeks back. This year will be first year that the family trust earns some profit from trading--100% distribution will be to me as I have plenty of deductions (mainly loan interest).

I also receive income from some IPs and HDT units, but I don't think that's relevant to my question.

regards

Pat

 

[Lukey13]

Medical profession/Government employer...I smell a PBI...do you work for a hospital or similar and are you salary sacrificing and using the FBT concessions for PBIs?

If you have a small business on the side, it may not be worth the rigmarole of alternate entities - as you can see above how much more complex it can be. One assumes you have an ABN and a business name - this is sufficient to access the 50% investment allowance. Then just claim the proportion of vehicle business expenses through your tax as per normal. Income streaming through trusts/companies isn't necessarily straight-forward when you operate largely generating Personal Services Income - there are rules that dictate that you need to pay yourself fairly promptly and you can't "pay the missus to do the books" when she doesn't have anything to do with it...there are also things like the Entrepreneurs Tax Offset that you may miss out on by choosing an inappropriate structure.

Hi Apocalypse, indeed I am utilising the FBT concessions of a PBI to salary package mortgage repayments, electricity and fully maintained new car leases for my wife and myself.

I was thinking however that this would not complicate my separate business income even if it was streamed using a family trust structure. I was hoping to avoid the Personal Services Income rules which would give me more options for income streaming, etc.

In terms of whether to purchase a car through the business whilst utilising the 50% investment allowance deduction versus continuing to salary package a car through my Government PBI employer it may work out better to continue the latter as I probably only have around 5,000 business kilometres at the moment anyway. The salary packaged lease caters for mostly private use anyway.

I'm thinking though of utilising the 50% deduction for the purchase of a video camera for the purposes of recording professional practice for professional development purposes of my industry. Since the camera is full HD (in order to reach the $1K minimum threshold) I'll also need to get a full HD LCD TV to be able to review such recordings. I don't suppose it will matter if it happens to be a 55" LCD if it's mostly (or all?) used for business purposes anyway?

I'll also have to think of any other equipment I'll need to get utilising the 50% investment allowance deduction.

 

[bagg]

This is an interesting situation.

Suppose I bought business premises. Would the total cost be used to get the rebate or would it be just the building (i.e. the depreciable part) and not the associated land content?

What do people think?

Bagg

 

[coastymike]

Buildings are subject to Division 43 (capital allowances) not Division 40 (depreciation) and therefore not subject to the investment allowance.

 

[Mac]

This is a stupid question, what constitutes a building under section 43?

is it just a fixed permanent structure?

or does it include things like temp transportables aswell ie dongas?

regards

pete

 

[Ausprop]

I am looking to write off a tranportable home at 50%. If it is classified as a building then there goes that plan, however note that you can get chattel mortgages on these things. one trust will own the transportable building and lease it to the other... as that trust will be in the business of chattel leasing.

I haven't read this whole thread but it is important not to claim this within a company as you will end up with an unfranked dividend

 

[Ausprop]

anyone have any luck finding out if a transportable home is plant or capital? I have been googling without luck. will try call the ATO tomorrow. Would the style of financing influence the debate? i.e. if i put a chattel mortgage over it does it help?

Oh I just found this

http://law.ato.gov.au/pdf/tr96-d12.pdf

 

[Perp]

Oh I just found this

http://law.ato.gov.au/pdf/tr96-d12.pdf

That ATO DR reflects exactly what I was going to say... "it depends upon the role that the transportables play in your business."

My reading is that the transportables would be plant for the chattel leasing business, and capital for any business/individual occupying the transportables.

 

[Apocalypse]

...
I haven't read this whole thread but it is important not to claim this within a company as you will end up with an unfranked dividend

Ausprop, could you elaborate on this?