17 Oct 2011 | Small Business
When a business is registered for GST it can claim the GST input tax included in the cost of business expenses and assets purchased. The amount claimable is based on the business use of the item purchased. Where an expense or an asset has a private usage component only the business usage percentage can be claimed.
Q. I just brought a car in a private sale that’s over 10 years old. I have my own company and this is the car I use for the business. I work from home and the car is registered in my own name. Can a claim this $6000 purchase as a company expense in my BAS? Is there any paper work I need to fill out if I claim the car as a Company expense that I need to know about?
A. From your description of events you paid for the car and there was no GST included in the cost. If GST had been included in the price the company could only claim the GST on its BAS if it paid for it. If the company reimbursed you for the purchase cost you would have to transfer the car into the name of the company. This would result in extra costs for a road worthy and transfer fees.
Rather than claim for the cost of the car in the company you would achieve a better result if the company pays you a car allowance as part of your salary. The company can claim a tax deduction for the allowance and you can claim the car costs on your tax return.
The amount you claim will depend on the business use of the car. If you don’t keep a log book you will be limited to using the business kilometre methods for claiming a tax deduction. If you do less than 5000 business kilometres a year you can claim a tax deduction by multiplying the distance travelled in a year by a rate that depends on the engine size of your car.
If you drive more than 5000 kilometres you can claim one third of all of your car costs, including the depreciation of the $6000 purchase cost, or make a claim equal to 12 per cent of the cost of your car. The cents per kilometres method will probably produce the biggest deduction.
Q. You recently wrote that shareholders pay tax on the untaxed gain distributed to them at their applicable marginal tax rate. Given an example of a company claiming the 50 per cent active asset discount on $100,000, how much does the company pay tax on the remaining $50,000?
A. The company does not pay any further tax on the $50,000 active asset exemption claimed but the shareholders will pay tax when the $50,000 is distributed. The tax rate they pay could vary between 15 per cent and 45 per cent depending on what other income they have earned in the year they receive the $50,000.
Questions on small business tax or other issues can be emailed to firstname.lastname@example.org
Tax for small business, a survival guide, by Max Newnham is available in bookstores.