tax break question

[mazdamadmum]

hmm.. my gf's uncle just purchased a brand new $75K C200... with advise form the accountant.. soo..**shrugs

Even though I'm an accountant we used to get our business taxes done by a local accounting business. We sold our investment house and after they did our taxes and sent us the papers to sign I noticed that we seemed to be paying too much tax. I rang the ATO and they redid the figures and apparently the accountant didn't know what they were doing in working out the tax owed. We saved about 15k in taxes because I knew there was something wrong but couldn't remember how to work out the figures. I also know of accountants who have no idea of what their clients can claim and do them out of deductions every year. I find it's just as easy to ring the ATO and say "look I have a business and earn this amount and pay this much tax and want to buy a car worth this much. What do I get back?" Easy. And free. Your accountant will probably charge for the consultation.

If you have a good competent accountant ask him otherwise ask the tax office.

[yorrick]

In simple terms. If you are basicly an employee (you work for one company and they control where and when you work) even though you have an ABN. You are less likely a business.

If you have a number of companys you work for and you have control of the work (you can say yes to that work and no to some other work) you are more likely to be a business.

Just to add to this comment, we consulted 3 or 4 accountants/financial advisors in relation to this matter. The tax office over the years (since 1980's) have been closing a series of loopholes. To be recognised as a sole trader or operating as a company you need to fulfill the following:

1) Have an ABN (duh!)

2) If you earn 80%+ from a single source (even invoiced using your ABN), then the tax office considers you a full term employee for tax purposes and not eligible to claim any business related deductions through your own ABN.

3) If you earn less than 20% from your ABN, the tax office considers that this is a hobby and cannot claim business related deductions.

There are certain classes of professions that can run businesses more easily and access more deductions than other areas.

[gtc]

Just to add to this comment, we consulted 3 or 4 accountants/financial advisors in relation to this matter. The tax office over the years (since 1980's) have been closing a series of loopholes.

Yep, that was to foil employees who quit on Friday and came back on Monday as "contractors" -- same job except that that were paid on invoice but taxed as companies. The boss was happy because it reduced his full time employee head count.

It took the ATO a very long time to wake up to that con.

[mazdamadmum]

And don't you have to have the company name on the back/front/side of the car? Gotta love those magnets like in P plates. Just don't leave them on there because they fade the paint. They also scratch the car.

[Palo Verde]

I learn so much about non car matters on omc!!!

[Dark Authority]

Yep, that was to foil employees who quit on Friday and came back on Monday as "contractors" -- same job except that that were paid on invoice but taxed as companies. The boss was happy because it reduced his full time employee head count.

It took the ATO a very long time to wake up to that con.

Yeh.. i was talking to GF's uncle. He said you cant earn more than 80% of ur income from 1 company.. or something like that

[mazdamadmum]

And if you're going to get a car this way I think the deal ends the end of December.

[MPS09]

are you sure about those figures???
I'm pretty sure it's not a case of -
$20,000 * 31.5% (30+1.5% medicare levy) = $ 6,300
BUT, more a case of -
Say you earn $100,000.00
Say you up for paying $30,000.00 on that (we'll talk round figure of 30% here for ease of explanation)
This means, you can claim up to $30,000.00 tax break that first year, PLUS the normal depreciation for the year.
So for a car that cost $40,000.00
you eligible for 50 % the first year ($20,000)
AND you're also eligible for the depreciation (cant recall what that is, so we'll call it n)
So, instead of having to pay $30,000.00 tax that first year,
you pay $10,000.00 ($30,000 minus the break)
ALso, subtract from that 10k the depreciation for the 1st year,
then you can claim depreciation for each following year.

Sorry Frank my figure is correct!!!!!!!!!!!!!!!!!!!

It is a tax deduction which in Accounting terms is an expense which reduces your taxable income.

So based on your figures (we will assume the normal depreciation has already taken care off)

100,000 - 20,000 (50% of $40,000 car) = 80,000 taxable income

Tax on 100,000 = 27,500 (assume have health insurance and no hecs)

tax on 80,000 = 19,200 (see comment above)

Saving = $8,300 unfortunately not the $20,000

You are not first and you will not be the last to think it is 50% saving.




[quote=mazdamadmum;19335]Ring the tax office.... They'll steer you in the right direction.


LOL



[QUOTE=Palo Verde;19341] honestly, do u need a c200 for work related task? (bet you a suzuki alto 1 litre will do the job nicely, they have pink ones too)



I say yes!!!!!!!!!!!!!!!!

I need an MPS. A base 3 will just not do LOL. Seriously it is not tax offices job to say what car you need. it just needs to be used mainly for business and if you run your own business this not hard to do.

If he can afford a c200 great, why not.

Even though I'm an accountant we used to get our business taxes done by a local accounting business. We sold our investment house and after they did our taxes and sent us the papers to sign I noticed that we seemed to be paying too much tax. I rang the ATO and they redid the figures and apparently the accountant didn't know what they were doing in working out the tax owed. We saved about 15k in taxes because I knew there was something wrong but couldn't remember how to work out the figures. I also know of accountants who have no idea of what their clients can claim and do them out of deductions every year. I find it's just as easy to ring the ATO and say "look I have a business and earn this amount and pay this much tax and want to buy a car worth this much. What do I get back?" Easy. And free. Your accountant will probably charge for the consultation.

If you have a good competent accountant ask him otherwise ask the tax office.

There are Accountants out there that have no idea but this is in every profession. I have known Doctors who do not know much.

Find a good accountant and you will be fine.

You can spot a bad accountant they think you would get 50% off the car.

Good accountant can explain the above.

[mazdamadmum]

The ones we went to had no idea about much at all. The guy we usually had was ok but he had been really sick and some bird took over his stuff. She was bloody hopeless. She wasn't very impressed when I questioned her. We rang the tax office and they told us how the tax was worked out for the capital gains on an investment house that had once been the primary place of residence but hadn't been so for about 7 or 8 yrs. Anyway......whatever

[MPS09]

Quote:

If you earn 80%+ from a single source (even invoiced using your ABN), then the tax office considers you a full term employee for tax purposes and not eligible to claim any business related deductions through your own ABN.

Answer

Not this simple, use the link in my earlier post to PSI and work through the table.


Quote:

3) If you earn less than 20% from your ABN, the tax office considers that this is a hobby and cannot claim business related deductions.


Answer

Huh let me know where you found this!!!! I have not heard this. If it is a hobby there is no tax and therefore why would you have an ABN ( the ATO will cancel your ABN in a year or two if no income)

[mazdamadmum]

But you wouldn't be buying the car in your name anyway would you so the 80% wouldn't apply. You would have to buy it in the company name wouldn't you?

[MPS09]

The ones we went to had no idea about much at all. The guy we usually had was ok but he had been really sick and some bird took over his stuff. She was bloody hopeless. She wasn't very impressed when I questioned her. We rang the tax office and they told us how the tax was worked out for the capital gains on an investment house that had once been the primary place of residence but hadn't been so for about 7 or 8 yrs. Anyway......whatever

I see you wanted to complicate things.

I would even have to look that up (not with the ATO). I have not done a return with that issue for a very long time. I think the method it did change a number of years ago.

But you wouldn't be buying the car in your name anyway would you so the 80% wouldn't apply. You would have to buy it in the company name wouldn't you?

It is still an issue in a company or trust. You can not get a round the PSI rules by setting up a company. So yes it would still be an issue even in the company.

[mazdamadmum]

I knew there was a reason I was doing a Bachelor of Forensic Chemistry . Accounting bores me to tears now lol.

[MPS09]

I knew there was a reason I was doing a Bachelor of Forensic Chemistry . Accounting bores me to tears now lol.

Yes a lesson for all, do not do accounting.

It is confusing and I am sure it will get more confusing in the years to come.

Fun for me, not.

[mazdamadmum]

I really enjoyed the bookkeeping and the balancing of ledgers and whatever at the beginning. That was fun. Then it got boring. One of the kids told me that the further I got into the Accounting degree the more boring I got. I did Legal Studies, as well, as a joint major.

But then again if you always want to be in work the only two sure things (we'll leave nurses out of this one) are death and taxes. Undertakers and accountants will always have jobs. As will child care workers and aged care workers.

Yes a lesson for all, do not do accounting.

It is confusing and I am sure it will get more confusing in the years to come.

Fun for me, not.

You could always do what I'm doing. Not forensic chemistry but you could retrain in something that you do enjoy. I started chem when I left school but ended up doing office stuff. Now I'm going back to my first love, science.

[MPS09]

You could always do what I'm doing. Not forensic chemistry but you could retrain in something that you do enjoy. I started chem when I left school but ended up doing office stuff. Now I'm going back to my first love, science.

the problem what would I do?

Also I have the problem that I work for myself, going back to being an employee would s*** me.

I think the plan (long term) is to build assets (with income) and therefore I do not need to work.

[mazdamadmum]

Going back to working for someone would piss me off too. My brother in law did horticulture at uni when he left school and ended up driving backhoes and then got sick of that and started working at Maccas as a manager. After a fair few yrs coming home smelling of fat he chucked it in and started a lawn mowing business. There's some good money in lawn mowing believe me. He has guys working for him and he turns away work. He does landscaping and that as well but it's mostly mowing but he's happy because there's no stress anymore and he's the boss.

For a while between uni and backhoes he worked for the local pool for 6 months of the yr. He saved enough in that 6 months to go away for the other 6.

I started that building assets thing but we got rid of them. We lived too far away to keep a decent eye on the real estate agents. Twice, for 6 months at a time, they let two different tenants get away with not paying rent. Unfortunately the other investment house was between tenants and both had mortgages. We were paying rent out west at the time. Not much eating done for a while paying two mortgages and rent for a month and then rent and a mortgage for another yr all up. No wonder we never seem to get ahead. Oh well. Shit happens. A holes cause it.

[MPS09]

Not much eating done for a while paying two mortgages and rent for a month and then rent and a mortgage for another yr all up.

This is a risk but not a big one at the moment and i say at the moment (i am also talking about Victoria) as there is a shortage of property. to purchase and rentals.

The risk at the moment is that you will pay to much for the property not if you can rent it.

[yorrick]

Quote:

If you earn 80%+ from a single source (even invoiced using your ABN), then the tax office considers you a full term employee for tax purposes and not eligible to claim any business related deductions through your own ABN.

Answer

Not this simple, use the link in my earlier post to PSI and work through the table.


Quote:

3) If you earn less than 20% from your ABN, the tax office considers that this is a hobby and cannot claim business related deductions.


Answer

Huh let me know where you found this!!!! I have not heard this. If it is a hobby there is no tax and therefore why would you have an ABN ( the ATO will cancel your ABN in a year or two if no income)

Both a general summaries of the discussion between 3 to 4 accountants.
I would defer to anyone who has a background expertise in tax.

Having consulted 4 accountants on the very same matter, we had three differing solutions from the four. Two were similar enough to boil it down to two different avenues to implement a company structure - but we were either ineligable or too expensive to implement.

And this was something that wasn't so complicated to implement (ie. sole trader and tax minimisation).

I prefer to stick with engineering. Either you got it right or you got it wrong!!

[Dark Authority]

i've done a years worth of accounting at uni... dont want to touch it anymore... thats why i've been avoiding it by doing all engineering subjects