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Buying a ute for property management?

Discussion in 'Accounting & Tax' started by Tim86, 18th Jan, 2016.

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  1. Tim86

    Tim86 Well-Known Member

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    I was just wondering what the best options are for purchasing a new ute that I plan to use mainly for doing work on properties. It would be for bunnings trips and doing the mowing at the properties and carting around the tools etc...

    Occasionally it might be used for a grocery shop (personal use).

    Is there any way to minimise tax in this case? My dad mentioned being able to claim all expenses with it and as its a ute I wouldnt need to keep a log book?

    Also I do have an Abn for an unrelated business that I no longer operate. Not sure if that abn would be of use in this scenario at all.

    And finally I work for a not for profit organization and already salary sacrifice my mortgage each year $16.5k. The remserv people I use for that do leasing and were talking about how I can avoid gst if I buy through them etc...


    Anyone have any ideas what my best options are here?

    Thanks heaps.
     
  2. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    Depends on if you are running the property investment as a business (ie you derive a significant income from it). Buying a ute to go mow the lawn once a fortnight and take some tools around for investment of a personal nature, ATO will see dimly of a full deduction.
     
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  3. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Unless you operate a business for the purpose of property management the deductions would be quite limited - To the diary / logbook use for the properties. A property management business would need substantial properties AND be a almost full time venture from which you rely for your sole or predominant income. Based on your other work income I suspect you would struggle to satisfy the business test.

    You may expect the ATO to conduct a intensive review if you use the logbook method etc as a passive property owner if the deductions are substantial. ie they would likely seek to confirm the use is artificial or a scheme. Using the ABN may lead to penalties if the properties are passive investments as a ABN is permitted to be used only for a enterprise and passive rental income (resi) is NOT generally a enterprise.

    If a vehicle is salary sacrificed there is no GST benefit as such since the formulas claw back and adjust for GST. And then YOU cant claim any deductions in any case. The employer does.

    The fringe benefits concessions for not for profits is on the treasury radar as being an excessive tax concession that favours only a limited class of workers.
     
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  4. Tim86

    Tim86 Well-Known Member

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    Thanks for the reply.

    I do a lot of building work at the properties. For example Im doing an extension at one over the next 12 months and I pay tax on the income that property generates, etc... plus I do all the maintenace work myself and yard work for 5 houses myself. And Ill be doing a raise and build under project at an IP in a couple of years etc...

    However its not like a business really. And from what you both have shared it sounds like it would be an unconvincing case for the ato? I never sell anything. All i pay tax on is the rental income I generate.

    The novated lease option sounds dodgy. Just got off the phone with remserv. They are going to check if my employer deems me eligible before giving me figures. But they operate off of a 10.5% loan rate which is way more than the 4% i would otherwise be using.
     
  5. Tim86

    Tim86 Well-Known Member

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    $1450 profit per week from properties.
     
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  6. D.T.

    D.T. Adelaide Property Manager Business Member

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  7. Tim86

    Tim86 Well-Known Member

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    I had a read. Thanks for directing me to that. Still all very confusing though...
     
  8. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The ATO view on a property business uses an example of a block or apartments and 30+ units etc. I have seen perhaps a handful in 10+ years. There is no defined measure. Private Ruling territory.
     
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  9. D.T.

    D.T. Adelaide Property Manager Business Member

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    Perhaps for a different thread, but what are the pros and cons of ATO viewing us that manner?
     
  10. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Good question

    A property business
    +/- The underlying ownership % may be disregarded. eg TIC % would be split 50/50 regardless...A "partnership agreement" or 50/50 would be basis for share of income and costs.
    - Risk to interest deductions where one spouse lends to other if its a business. ie a partner cant lend to the other.
    +Possible enhanced deductions for business expenses eg office, storage, vehicle etc
    + Improved asset write off rules ($20K per item)

    Limited info is here : Obtaining and owning a rental property | Australian Taxation Office

    Some ATO views on a Partnership are considered in the Ruling in the above link. They tend to aggressively object to a partnership and argue "co-ownership" where the numbers are small.
     
  11. Tim86

    Tim86 Well-Known Member

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    Ive actually looked into the lease option. It does seem like its going to be significantly cheaper than buying a car with my homeloan money which is a 4% rate. Should save me $3000 per year for 5 years...

    I think Ive done all my figures correctly.

    For a $42000 car it will cost me the equavelent of $227 after tax dollars per week and that covers 8000kms worth of fuel, all maintenance and insurance and services and rego. And ill only owe $11500 after 5 years. Plus I only pay gst on the 11500 rather than the 42000.
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Keep in mind if you pay cash, or borrow from the home loan to pay, you could still claim the GST.
     
  13. Tim86

    Tim86 Well-Known Member

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    How does that work?
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    GST is claimable on business expenses if the taxpayer is registered.
     
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  15. Rob G

    Rob G Well-Known Member

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    A business expense to make an input taxed (residential rent) supply?
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Sorry, i missed the bit about buying it to do work on properties. scrap that idea!
     
  17. Angel

    Angel Well-Known Member

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    Why buy new? Buy a regular 2-hand ute for half the price or less. It will get scratched and will start to look shabby when used as a workhorse. See if you can claim it's total purchase price in the new $20K depreciation rules. Apologies if this was mentioned in the other posts
     
  18. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Angel...The key issue needs to be determined if a small business enterprise exists. Maintaining and managing own IP that are residential rents wont satisfy the test.
     
  19. Tim86

    Tim86 Well-Known Member

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    I read over your replies again.

    So with establishing that a small business enterprise exists based on servicing and self managing investment properties. You did mention that the income from the properties would have to be the major income, more than my day job. This will actually be the case in a month or two.

    So if Im earning more profit from the rentals would that qualify me?

    My dad mentioned the possibility of doing a log book so that they can see the proportion of use for property management that you do.

    Honestly the ute would be used 1 tenth for private usage. Currently I do trips every 2 days to load up building supplies/go to bunnings. Regular trips to show new tenants through as I rent per room and this takes more management. Trips to do inspections. Trips to do maintenance. Trips to mow the yards as I maintain the lawns on one 1600m2 property, a 800m2 property, 1012m2 property and a 600m2 property. So there is a lot of yard.

    I do a lot of building work. Currently building a 250m2 extension at one property I get rental income from. Just finished renovating and placing a 220m2 removal house which I turned into a rental property. After my current build I start a raise and150m2 build underneath at a rental property. And Id be using the ute for all of that.

    I will be working 7 days a fortnight doing building work at rentals. And only 7 days a fortnight at my day job

    And all that work I put in, I pay tax on. So surely Id be able to claim something...
     
  20. Tim86

    Tim86 Well-Known Member

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    A dual cab 4x4 holds its value well. And tradies do a lot of k's, plus these cars are work vehicles so 60 000ks on a ute may have been some hard bloody ks. So you dont know what you are getting. They may have taken it 4 wheel driving and driven it through water etc...

    Plus people knock generally say 5000 off the price of a new car if it is 1 or 2 years old. But if you catch a sale then you might get 2500 off the new car. So you end up with a new car for only 2500 more than someone is trying to get for an old one.

    The way I think about it is. If a car has 250000ks in its lifespan. And someone is trying to sell a $40000 car for $30000 with 100 000ks on it. Then effectively that 100000ks is 40% of thr cars lifespan. However the $10000 discount off the new price is only 25% off.

    So you are getting 40% less car but only paying 25% less money.