Syndicate Pty Ltd - what about taxes?

[Guest basscheffers]

I run several for-profit companies, so I know all about record keeping, GST, BAS, tax returns, etc. for that purpose.

 

But now we're starting a syndicate and as with many other syndicates, we'd like it to be a Pty Ltd company where each member is a shareholder.

 

Obviously, we won't register for GST (won't have to due to low revenue anyway) but what about company taxes and BAS? Do we have to register for a TFN and file these?

 

Obviously, we'd hate to be in the situation where the money for hourly use that goes into the maintenance kitty is seen as profit and taxed...

 

How doe other Pty Ltd syndicates deal with this?

 

 

[facthunter]

Group?

 

Did something like this about 4 years ago. My wife has been a Tax agent in the past, but we didn't go the way of an incorporated body. We set it up as a Group with rules to govern accountability, and set up a Bank account in the groups name. and had meetings to make decisions on matters that came up concerning the property. ( Rates insurance repairs etc ) The property was allocated to units which equated to spaces in the hangar .. If somebody let out a space that was their business as long as the rules were abided by. The rules governing disposal or death of a member,as well as the general operation, should be thorough and to this extent, we spent some money getting legal advice and structuring the document (agreement), which was all it was, an agreement between a group of people.

 

You could go incorporated and not have enough rules and get into a lot of trouble so what do you gain by being a Pty Ltd. or having ( Inc.) after your name. You can limit your liability, but I can't see what else you achieve. You do need to be an IDENTITY to operate.Nev

 

 

[dunlopdangler]

All good advice here Bass..if you are going to crosshire as a training aircraft then you will more than likely need to go down the P/L route. If on the other hand the aircraft is used purely "non for profit" by syndicate owners then go that way as a group or club. best advice is to go knock on the door of an accountant.

 

 

[Guest basscheffers]

I am happy to go talk to an accountant, but my experience is that when it is something out of the ordinary (like this is) the chances of finding one that knows what they are on about, let alone give you straight forward advice or recommendations, it pretty rare.

 

Hence I am trying to find out here what solution other people have come up with before I go spend money. Pretty much any syndicate I have heard of is a Pty Ltd.

 

The main advantage of a Pty Ltd seems to be that to change ownerships, all you need to do is sell the shares. When you go as a group or partnership, every member's name needs to be on every legal document.

 

 

[Bandit12]

I'm looking at one at the moment - the MAG group based in Moorabbin. Do a search and email them, I'm sure they would be happy to answer those sorts of things. And they have been doing it for over 50 years, so must be doing something right. Incidently, their aircraft seem to be among the nicer on the field that I have seen so far.

 

 

[Guest basscheffers]

The aircraft we are looking at, you can't rent from a club: an RV6/7(A). And the savings are very much worth it to us. The only things to rent here are Jabirus from Gawler or expensive Cessnas/Pipers at Parafield. We've done the sums with the help of some experience RV owners and it's the cheapest way to fly something in that class.

 

I think there's four of us and we seem to be very much on the same page with what we want out of the aircraft and the syndicate. But yes, there will be shareholder agreements, including dispute resolution!

 

Incidentally, there is a share going in a 1971 Piper Cherokee 180 here at PF for the bargain basement price of $5K for the share, $75/month and $120/hour wet. There are 20 members but only 5 or fly it, so average 250 hours a year. The syndicate is 6 years older than I am! Sadly, not the aircraft I want to fly at the moment. Can't beat it for value for a 4-seat cruiser, however.

 

 

[dunlopdangler]

Bass..PM me your address and I will send you a book about aircraft syndication which you may find interesting reading...

 

 

[Guest davidh10]

Unless the ATO grants your company, non-profit status, you will need to submit tax returns. The ATO dislikes companies that continually lose money, so it is better that it makes a small profit.

 

If it is non-profit, the members & shareholders cannot receive any benefit. That includes being barred from receiving any share of the assets if the aircraft is sold or the company wound up. It may even prohibit the share price from changing, as that would be a benefit. I suspect that isn't what you were contemplating!

 

If, however profit is small, you can apply to ATO to do BAS and PAYG annually.

 

A Unit Trust could be another structure you could investigate. I think a company would fit better than an incorporated body, albeit that would be a lower cost.

 

 

[eightyknots]

You could try enquiring from a specialist in forming Companies Limited by Guarantee. They are not Pty Limited companies and are often used for churches, clubs, Bible societies etc. If you set one up, you can even apply to have the Limited taken of its name and still remain a corporation. The Act allows this. I was involved in one in the 1990s: I tried a few accountants in Western Sydney, who did not know much about these corporate creatures. It's best to do a bit of ringing around to find a specialist in Companies Limited by Guarantee before paying money to an accountant who really doesn't know anything about them.

 

 

[68volksy]

Hi Bass,

 

From an accountants perspective there are a wonderful variety of tax considerations laid out in front of you to consider here. The first consideration needs to be looked at from the company's perspective (the same test would apply whether it was a company, partnership, joint venture, trust etc.) which is best done by considering the company as a separate entity. In this instance the company could be considered to be in the business of hiring out an aircraft that it owns. Whether it hires the aircraft to Shareholders or not is not really a consideration. In this case all money paid for hourly hire would be considered income. You can offset this income with maintenance and fuel expenses etc and also with the depreciation of the aircraft itself. The depreciation deduction is generally the most substantial and allows around 20-25% of the aircrafts opening value to be included as a tax deduction each year. I am yet to see a cross-hire arrangement that makes a profit - kind of like rental properties... The tax returns each year are very simple and easy to prepare and should cost not much more than getting an individuals return prepared by an accountant. There's no requirement for Business Activity Statements unless you register for GST which i've mentioned below.

 

If the company performs its operations at arms length from the shareholders and perhaps cross-hires through a flying school or offers services to the public then it creates a range of considerations for the shareholders/directors. If one of the shareholders was to borrow money to purchase their share then the interest on that money would be a personal tax deduction. This could be a very good consideration for those on the higher tax brackets. There's also the ability to pay Directors fees/salaries from the Company.

 

If all the shareholders have GST-registered businesses that they hire the aircraft through then it would be worthwhile registering for GST. The GST-registered businesses claim back any GST the hire company charges and the hire company can claim back the GST on any of its expenses. When you add up the GST on the fuel and maintenance expenses it's usually worthwhile.

 

I would steer clear of associations and Limited by Guarantee companies due to the restrictions associated with these in regards to the distributions of profits. A Pty Ltd company is the cleanest mechanism in my view to achieve the aims you identify. Keep the shareholders agreement clean and cover all the main outcomes clearly (with general clauses for the rarer outcomes).

 

That's a very brief summary anyway. Can't let out all the trade secrets in one go...

 

Cheers,

 

Tim

 

 

[Guest basscheffers]

Tim, when I read your post, I had a real "d'oh!" moment! Of course depreciation...

 

We have already decided we are not going to be putting money away for engine rebuilds, so the few thousand that might be in the account at the end of the year for the next 100 hourly isn't going to be taxed. And if we do sell it after it's fully depreciated, I doubt we'll sell it for more than the accumulated losses over the years.

 

We won't be cross-hiring it; that's not possible anyway with an experimental.

 

It would be real great if there was a proper legal vehicle to do this, but no such luck. So Pty. Ltd. it is.

 

Thanks for all that!

 

Bas.

 

 

[Guest AusDarren]

I was a shareholder Member of MAG based at Moorabbin, The company owns 2 Aircraft, A Piper Archer, and a Cessna 182S. Very Very well run.

 

I'd have no hesitation in recomending their model, About 38 Shareholders, and this gives good availability over the Two Aircraft, Normal Accounts are maintained and Audited. have a look at the Info on their Website http://www.mag.com.au.

 

Each shareholder Pays an annual fee that relates to the costs that occur even when not flown. This covers things like Insurance Moorabin tie down charges and annual returns, Then when you fly you are also invoiced at the end of the month for the operating costs. The 182 was on Airswitch, and to do 4 or 5 circuts was often only .4 or .5 when the charge out rate was abound $160. Sufficiant cash was available in the company to cover things like engine overhalls when due, and a little to cover unexpected maitenance. So in answer to the original question, yes all the normal requirements of operating a company need to be met.

 

 

[Guest drizzt1978]

Hey Bass

 

Our Syndicate is a Incorporated association. We dont cross hire tho, just used strictly for the members. We have a nominated secretary and president; Those positions rotate, The incorporated association has a list of members that are held with some goverment body (cant remember)

 

Insurance is in the syndicates name, with members listed on the insurance document, and an instructors name for training of new members.... I can email you a pdf of the way it is setup.... Is was orginally set up for legal reasons to protect the members. The person who set it up was a member and a lawyer.... If one member flys into a Boeing or something, (aka decides to hurt people) no other members can legally be touched.....