Aircraft on line to earn income and offset costs - issues?

[leestanley]

Hi All,

 

Looking at the options for owning an aeroplane and putting it on line at a school to generate income and therefore make expenses tax effective.

 

Do any of you have experience here, are there particular thresholds that the ATO will expect you to meet in terms of usage, income etc?

 

Please note that this is primarily a tax question - and NOT a general question about having aircraft on line. And, of course, I will consult my account for professional advice - just interested here in any lessons you have learnt :)

 

Cheers!

 

 

[djpacro]

Lee,

 

This is the bit of the ATO website most likely to be applicable:

 

Non-commercial losses essentials, especially this page.

 

 

[shags_j]

EDIT: Helps if I read other peoples posts. The link DJPacro sent is really just a summary of the below.

 

...

 

Just quickly - This is not advice and you should seek further professional advice from your authorised tax agent ( )

 

K with that aside. I assume you are looking to do this to realise a tax loss to offset against your other income.

 

I see two issues with this (which I haven't researched or looked into, this is remembering back to uni and a couple of seminars i have been to since)

 

1. To prove that this is not a hobby and is a valid business (or psi or whatever) you would need to prove it as such (ie. frequency, nature etc).

 

see here: Am I in business?

 

2. From memory you would not be able to offset against other income without passing certain tests (maybe you would pass the $100k asset test if it is an expensive aircraft but probably not the rest of the tests). Only once those tests are passed can you offset against income.

 

Anyways, I am a superannuation accountant so see a tax accountant for more specific advice (I guess that really just made this whole explanation a waste of time).

 

See here: Non-commercial losses: overview - fact sheet

 

Cheers,

 

Shags

 

 

[leestanley]

thanks shags - not a waste of time at all!

 

all feedback is good... with all the super changes in the wind you should be a very popular man!

 

David's feedback and links were very useful... the $20k threshold appears to be v important.

 

I'll be seeing an accountant over the weekend who has aviation clients so I'll post back any pertinent updates.

 

Cheers,

 

Lee.

 

 

[shags_j]

Yeah definitely let us know how you go.

 

 

[Guest basscheffers]

I do this.

 

Of course an accountant can give you a much more detail, but the short answer is that ONLY the business use part of the aircraft is deductible. If it gets used 50% for business and 50% personal, only half of the depreciation can be claimed against personal text. (This is assuming a sole-trader situation) If you are GST registered, only 50% of the GST you paid for the aircraft could be claimed, etc.

 

It is slightly different if you have the aircraft in a company, in which case you'd technically have to end up "hiring it from yourself" at market rates.

 

I have heard of ATO cracking down on those tax-evaders that buy an aircraft, slap their (non-aviation) company logo on it, call it avertising and deduct the whole thing. What I have never heard of is the ATO even auditing, let alone taking issue with, the kind of thing you are proposing, i.e.: actually making money and having a bit of benefit on the side.

 

It's a huge gray area; while the ATO has detailed rules for allowing you to come in to your woodworking company on Sunday and work on personal projects using the company tools and machines without paying fringe benefits tax, or less-than-market-rates use of company vehicles in your own time, they say nothing about aircraft.

 

Until one of us gets auditted, we may never know and luckily, while you may get hit with back-tax, if you maintain a defensible position, you are unlikely to get a fine on top. i.e.: flying 50 hours a year personally and paying for your own fuel, while the aircraft gets hired out another 450 hours a year, is likely pretty defensible.

 

After all, those 450 hours made them 6-7 grand in GST alone. Which they wouldn't have without cutting you some slack over the other 50...

 

 

[shags_j]

Hi Bass,

 

Good points all but is only relevant after it is established that a business is being run. So therefore the checks are:

 

1. Is this a business or a hobby?

 

2. Can the losses be offset against other income (4 tests)

 

3. Identify private use portion of expenses.

 

 

[Guest basscheffers]

Shags, looks like the whole "are you running a business" applies only to people operating as a sole trader?

 

If you start a pty ltd company, things are very different. Mainly that losses simply accumulate in the company rather than being able to offset against personal income.

 

My construct is that I started pty ltd and loaned the money to buy the aircraft from as a mortgage from myself. So losses just accumulate. If I decide to get out, I would sell the plane, pay off the loan, work out how much of the money from selling the aircraft is profit (depends on how much depreciated and sale price) and pay company tax, then pay whatever is left as dividend, paying personal income tax on it.

 

I can probably reduce company tax at that point by paying back-wages for the work I have done and never been paid for as director. (plus interest?) Those are expenses for the company, whatever is left we pay tax on and then dividend for me which I pay income tax over.

 

All very complicated and a lot of tax, but the tax system is actually quite fair and had I done it as a sole trader there would be very little difference in tax paid. Afterall, after you have depreciated the aircraft as a sole trader it is a full business asset and if you sell it, full income tax is payable on the sale amount!

 

The only things certain in life are death and taxes...

 

 

[leestanley]

... and good advice on Recreational Flying!! :)

 

 

[Neville75]

After all, those 450 hours made them 6-7 grand in GST alone. Which they wouldn't have without cutting you some slack over the other 50...

ATO cutting anyone slack... hmmm? But I get what you mean.

 

As previously stated, if you reduce any tax deductions by a non business percentage I'm sure you would be fine. In any case, if you wanted to fly your aircraft for private use, the ATO is not to know the nature of the flight....ie from here to here to visit a lame to discuss maintenance, from here to here to test if the engine was getting hot. Kinda like completing a motor vehicle log book for business/private usage...... maximisie your business use percentage.

 

 

[shags_j]

Henry review released today. Good reading if you have insomnia. I'm only about half way through it.