Recreational Aviation Finance

[Guest basscheffers]

Do you have any useful, practical examples, known to be accepted by the ATO?

 

I don't know anyone who has an aircraft online and pays FBT for their personal use, and I have asked around a fair amount. That doesn't change the law, but the FBT is complex and there seem to be many ways to skin a cat.

 

Could you be allowed to use the same operating cost rule as for private use of cars? After all, the ATO defines a car as "all other passenger-carrying vehicles designed to carry fewer than nine occupants". And it would be hard to argue an aircraft is not a vehicle.

 

If that were allowed, you'd be paying FBT over far less than $145/hour!

 

 

[Guest Orion]

Just cause they don't pay it doesn't mean they shouldn't.

 

ATO hasn't looked very hard which is why people get away with it.

 

Bear in mind FBT only applies in employee type relationsahips therefore as a sole trader or partnership its unlikely to affect the owner. In these cases the owners deductions are limited to the business portion of the use.

 

Good luck with the arguement that a plane is a vehicle the definition you refer to is a definition of a motor vehicle which a plane clearly isn't.

 

Point i'm making here is that if its private use ie not for income produing purposes then

 

as a sole trader the private component of the use is not deductible either for income tax or GST

 

As a partnership ditto

 

As a company if you are a director then you are an employee regardless of payment or lack thereof and any "benefit" received is potentially subject to FBT. Broadly speaking a benefit is any thing received as a consequence of your emplyment relationship at less than market value. The benefit being the difference between what is actually paid and arms length market value of the good or service received.

 

As a company, if not a diretor but merely a shareholder then post 1/7/2009 the use will be deemed a Div 7a dividend.

 

As a Trust the situation is more complex but in the case of employment is generally similar to company outcomes.

 

In the end the formula is simple. Market vale less actual payment = Benefit.

 

Kent

 

 

[Guest basscheffers]

Good luck with the arguement that a plane is a vehicle the definition you refer to is a definition of a motor vehicle which a plane clearly isn't.

Unless there is another legal document where they specifically do so, the ATO does not say anything about being exclusive to "motor vehicles", nor does it redefine the definition of "vehicle" to not include planes, not that I can find anyway. It just speaks of "vehicles", which a plane by any dictionary is.

Car fringe benefits

 

As you can see, it clearly defines "car" to be any vehicle used to transport people.

 

A horse and cart would fall under it and so would a riksha or a boat! All of these things are vehicles used to transport people.

 

In the end the formula is simple. Market vale less actual payment = Benefit.

Except where there is a special rule, like for private use of company vehicles. (or rather: the formula is the same, they just have a vastly more favourable way of establishing market value to the user) It would be strange if you used the company car for private use and then had to pay FBT based on what Budget would charge if you rented the same car from them. That makes no sense, but that is exactly what you propose is the only option for people in my situation!

[Guest drizzt1978]

I spoke to my accountant the other day. He said that he just had several customers audited, in particular they were focused on Boats and Planes. Especially the smaller type of planes. He said you really need to justify it very well.

 

 

[Guest basscheffers]

The plot thickens

 

NOTE: I am only talking about my situation, where I own the aircraft to hire it out and use it occasionally my self. (but frequently and regularly enough to not be exempt on that basis)

 

Going through the regulations a bit more, it would seem this is an in-house residual benefit.

 

So instead of like you say using the $145 as a value, it would seem to be no more than 75% of what the general public pays. The general public being my only client, the FBO, I would take what I charge him. So that's a whole lot less to begin with.

 

But:

 

NAT 1054 - Chapter 20 - Exempt benefits

 

The limited use of equipment off your business premises qualifies for exemption provided the equipment is ordinarily located on those premises or at your worksite for use in connection with business operations. This exemption would extend, for example, to business equipment that an employee borrows to use overnight or at weekends. A power tool or personal computer taken home in these circumstances would give rise to an exempt benefit. The exemption does not, however, extend to use of one of your motor vehicles.

So if this plane flies for business 25 hours a week ("ordinarily") and I take it for 2 hours on the weekend that would be exempt. The only "good" the company provides is the fuel. So I'd have to pay that myself directly or pay FBT on just that component.Except that that does not apply to motor vehicles. So the ATO has a choice: let my use be exempt or classify it as a motor vehicle and let me have it at operating cost-base.

 

(Trivia: going through case-law, a grader is not a motor vehicle and thus its private use does not fall under the motor vehicle rule and in this case would also be exempt)

 

 

[Guest Orion]

Good luck with the definition of an aircraft under the Motor Vehicle FBT rules.

 

Again the danger of a little knowledge.

 

For FBT purposes the terminology is not vehicle but "Car"

 

Now not to put too finer point on it but NAT publications are not law they are just summaries rather like fact sheets.

 

For revenue purposes the law is the law.

 

The info you are posting is pulled out of a NAT publication dealing with CAR benefits in this context clearly the term vehicle is referring to a Car.

 

Once again good luck with trying to argue otherwise to either the ATO or a Judge which is where this would end up.

 

The formula described earlier is general for valuing benefits, of course ther are special rules in some circumstances such as cars allowing either statutory or operating cost methods.

 

In the case of a residual benefit ther are differeing methods of valuation.

 

Except where a concessional rule applies in respect of an "in house" benefit the value of the benefit is the amount by which the arms length value exceeds the amount actually paid. These are referred to as general residual benefits.

 

If its an in house benefit the the valuation is bassed on 75% of lowest value charged to the public.

 

In the end except for the special rules the general rule is Market value ie that which the public could reasonably be expected to pay and what you the receipent actually paid.

 

Bear in mind here that we are talking revenue law here which is different to most other law in that its guilty until you prove innocence. This means the ATO doesn't need to "let" you do anything you need to establish to their satisfaction that what you are doing is legitimate. If you disagree with them off to court you go.

 

Thats the way it works in theory and practice.

 

Basscheffers, i'm trying to help you here but obviously you are much more expert on the subject than me. Obviously wasted a perfectly good university education and twenty something years in tax and public accounting.

 

kent:)

 

 

[Guest basscheffers]

Don't take this the wrong way, I try to challenge things. I don't take anything for granted, no matter who says it, I need to be convinced! :)

 

Seriously, if it is not a motor vehicle, then the plane is simply a piece of equipment used in the company, for company purposes most of the time. As an employee I take it out on the weekend to use. What is special about this piece of equipment compared to a jigsaw (or multi-million dollar CNC machine for that matter) that makes it no longer exempt?

 

 

[Guest Orion]

my bet would be primary purpose.

 

Intent of the residual benefits provisions is really to cover occassional use of company gear.

 

Taking the asset that earns the income and using it 2 hours a week is really not ancillary / residual and i'd bet london to a brick that the ATO ausitor would see it the same way.

 

Its not the same as borrowing a drill or taking the company car home.

 

There is a difference.

 

Cheers

 

 

[Guest basscheffers]

OK, I see what you are saying. No hard and fast rule and the only way to find out for sure is to get audited. Great! :(

 

It's a damned if you do, damned if you don't situation for the ATO too. Come down too hard and it's not worth my effort and they easily lose 10 grand a year in GST. Double that if you count the company tax of the FBO and the income tax of their employees. (and their other supplier's taxes, and theirs...)

 

And it is not just me because the majority of planes at FBOs seem to be owned by private individuals. (or their companies that own exactly one asset) Good luck to the FBOs trying to finance planes without people like me!

 

That is probably why everyone else seems to get away with it.

 

I'll get a second opinion, but will likely at the very least end up invoicing myself for fuel, which is absolutely taxable even if the plane is exempt. That will show intent to follow the rules if I get audited.

 

I have been involved in many tax situations with several companies overseas. It never ceases to amaze me that everywhere even accountants often have to come up with "It's not clear, so let's do it this way, it is defensible". And then find out if it was acceptable during auditing, after which there often is negotiations between the tax man and the company because the tax man is making it up as they go along for special cases. (In case you are wondering, this is a jibe against the government, not the accountants that are trying their best to interpret the rules!)

 

Cheers,

 

Bas.

 

 

[Guest Orion]

yep thats the way it usually works.

 

best bet is a commonsense approach

 

works most of the time.

 

cheers

 

 

[Guest sypkens]

My accountant has managed to put it into the business, and I do use it for business travel together with promotion, as I have put the company name on the tail.

He also considers fuel and hangar rental as business expenses.

How well would the marketing approach stack up then? For instance you cannot justify the plane based on business use but decide that you could use it as an effective marketing tool?

 

What about setting up a business external to your normal business as a "marketing business". This business buys the plane, sells marketing space on the plane to any company willing (like your primary business) , sticks plenty of company logos all over the plane, and it just so happens that you are the pilot as well? It's main purpose is advertising and it performs this duty by showing up at various events?

 

I am curious as to how the ATO would see this? similarly I am assuming you could only do this under GA as under the RAA this would infer reward and it would not be a flight school? Would you need an AOC? So many questions, too many regulations!

 

Jan

 

 

[Guest redleader]

hey bass,

 

when you hire the aircraft out do you also provide training such as a rec intstructor rating?

 

I wonder whether remaining current on type could be associated as a defendable cost and not deemed personal use. I imagine the occasional nav to refresh thoose skills could be warranted or something like that :D Piloting has a certain ongoing professional development costs associated and if you are deriving an income from it, the costs with mainting that professional standard surely would be tax deductible. surely a nexus exists.

 

cause i have often wondered about this scenario. You get your raa instructor certificate start deriving an income. You working at a "school" that is both ga and raa equipped then the costs of "professional" development to a cpl and instructor rating under ga surely would be apart of self education expenses for your current employer?

 

orion your thoughts?

 

regards

 

 

[Guest basscheffers]

I think the school it's kept at is allowed to do instructor ratings, or if it's not, with the amount of senior RA, GA grade 1s, GA/RA CFI who's also ATO (PPL for now, CPL soon) and allowed to train GA instructors, I reckon it wouldn't be hard to get the OK from RA-Aus to do instructor ratings! :)

 

I could get my instructor rating but I have not gone down that path, lack of time is the main issue and it wouldn't provide me a significant income compared to what I can make spending that time doing other work I enjoy. The aircraft is not making a lot of money. In fact, the amount I have to put into the company to prop it up is not significantly less than it would be to just hire it. (Why am I doing this again???) So it'll be rather hard to accuse me of tax evation!

 

But some things surely would be allowed. For instance flying it to an airshow where you actually do significant propmotion. Soon I'll have some charity flights coming up, which will certainly go into the books as tax-deductable donations because that is what they are. (Even though I will certainly be enjoying doing those flights!)

 

 

[shags_j]

Holy thread necromancy batman...