I’m not sure if this has been covered elsewhere and I will get professional advice but thought I’d try here first. Is it possible to create a company so you can essentially pay yourself to do works at your own property. There would be 2 parts to this. Part 1 for maintenance works. Most maintenance issues that come up I can fix myself but not being able to claim things like petrol/car or if I need to buy a too to complete the job makes it not really worthwhile. Part 2. Is the bigger part. For larger scope works example subdivision. Buying machinery to complete work and being able to write off that value etc. If this has already been discussed would love to be linked to the topic. Thanks ✌
Instant asset write-off for companies would be the best way to write off large plant and equipment. We (sparky company) just went about bought some new cars and a scissor lift to offset an amazing year of profit - indirectly it may be helpful to paint a house down the track on a weekend, but you'd need another business to be able to charge the investment company.Just like the real world. Net benefit is zero. Profit=cost.
What are you trying to do? Are you hoping to divert income from yourself to a company? If it is a convulted way to get your high tax bracket income to a low tax bracket company it will likely not work. If there is another reason let us know.
It could/would have multiple benefits. 1 is, as @Clean Cookie stated the ability to write off assets instantly. For example, say there’s $30k of earthworks for a subdivision. Instead of paying an external company to do the works I buy a $30k excavator and do the works myself. Pay my company the money money I would’ve paid elsewhere and gain an asset. 2. Potentially being able to pay myself a wage through the company (in the future) to aid borrowing. Not being dodgey about things but would rather pay myself than someone else. Another example I suppose is, if I hire a concrete cutter I can claim it but currently if I buy one for just a smallish maintenance job I can’t see how I can really claim it. @Scott No Mates potentially, as it will become my work, but initially probably not as I have enough of my own jobs to keep me busy (also essentially a stay at home parent currently)
If you do the job, invoice company/trust holding property $100k persay You're liable for 100k income and therefore are subject to pay income tax. You buy plant for 20k instant write-off you're still paying tax @25% on your own money (80k "profit") Or you work for free, hire saw for 5k, claim back some of that and then total outlay is way less to do the job. Sure you don't have any assets to show for it but that's one less thing to store/maintain. Same result, but you busted your ass for a lot less money going to the tax man in option b. I've previously asked about buying a hedge trimmer to maintain hedges the Tennant's can't reach. I don't have a hedge at home so have no use for one... I ended up leaving it onsite to be clear about it's purpose and tax deductibility. They ended up using it to trim the hedges ever since, win win!
The way I’m looking at it. Property is owned in my name (already have the property/s) Company invoices for $50k for works, company buys $50k machine = no tax Cost base of subdivision increases $50k. $50k less profit when I sell. Due to large price increase in property that $50k would’ve been in the top tax bracket so approx 50%. Would also allow to spread income over the period of the works. Say subdivision build takes 2 years. Company can pay me over that period (for work as it’s completed) instead of just a having a larger lump sum at the end of the project.
If something is a capital expense, paying a related company doesn't make this deductible. Deductibility remains the same, except if it is a scheme to divert income to a lower tax payer - which it appears to be. You own the property and you are doing the physical work. What is the purpose of doing this other than for tax? When you have a related company pay yourself this won't improve serviceability because you are treated as self employed.
I think you are on the verge of incurring a small fortune of advisory fees for no net benefit. While I am not yet clear (and this reflects more on me than you) as to your overall purpose the banks and the ato have a lot of work focussed on mischief - I am thinking (tax law) of attribution of personal services income, div 7a and a raft of other stuff. take care with your advisors and the bottom feeders trying to over complicate things.
Thanks @Terry_w i sort of understand but am still a little lost. If I just do the work myself on property, I can’t see how I can claim (at any point in time) expenses like car, fuel to travel to sites, tools but then also bigger things like machinery which would be tens of thousands of dollars. So tax would definitely be a part of the company idea but the ability to grow the company in the future for other developments would be another part. In terms of income, let’s say I do a subdivision and go from 1 house worth $500k to 3 houses (same block) worth $1.5m. And spend $700k to do it. In theory I’ve made $300k but unless I actually sell any of these I have made zero income. If I could pay myself for the works I’ve done then I would have an income therefore better borrowing potential (after a couple of tax returns)? Am I off the mark with my thinking?
If you dont sell, then the costs would be part of the cost base, and the ‘income’ to the business would be taxed, no?
If you are acting as a developer or builder you could claim travel and tools etc. It would perhaps be unlikely that you would be buying a property in your personal name anyway if doing this. If you are the owner of the company and it makes $700k profit and your wage is $100,000 your serviceability would be based on $800k roughly. If the profit is unrealised then the company would have a $100,000 expense which would cancel out your wage. - $100,000 plus $100,000 = nil
Hahaha thanks @Ross Forrester I’m actually the last person who would over spend on advisors and such. I have always kept things really simple and straight forward, I like to sleep at night knowing I’m doing everything above board and the ATO will never come knocking. That’s why I’m happy to post questions on here to try to get a better understanding of things. You just don’t know if there’s better/different ways of doing things unless you ask and explore ideas.
The first part I suppose is what I’m getting at, I would be acting as the developer/project manager. And already own the property/s in my personal name.....
That would be my understanding, it would be a trade off, copping the tax so I have borrowing potential
I will simplify all the above. No. And... the entity cant subdivide. It doesnt own any land. And wouldt meet the business test.
