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Can I give loan to my company to buy a vehicle and later get that same vehicle on lease

Newbie

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Replies 4

I am in a process to register a company for tax purposes, is it possible to loan the money to my company so that it can purchase a vehicle and then lease that same vehicle from my company so that I can work in ride share, confusion here is that then I will be Director as well as client of the company, are there any laws about this?

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Most helpful response

Devotee Registered Tax Practitioner

Replies 3

Hi Jay8, I'll give you some things you may wish to consider before going ahead with your idea.

 

Rideshare platforms generally require that you trade as a sole trader in your individual capacity.

 

Did you receive any advice on this structure or plan?  What are you trying to achieve?

 

Let's think this through a little.

1. Director lends $35,000 to ABC company.

2. ABC Coy buys the director's car at market value / arms length for $35,000, pay stamp on transfer for the new registration, insurance, etc.

3. Company is a small business in the business of leasing motor vehicles, and claims the full $35,000 as an immediate deduction.

4. ABC company leases the vehicle back to the director at market rates.  Lets say it's 35,000 over an effective 8 years, so 4375, so lets round it up to 5000 hire fee.

5. ABC coy makes a loss in the first year and has (30,000) loss, and the director would have to inject more than $35,000 to cover stamp, registration, insurance.

6. Director is also paying lease fees into the ABC coy, so now there is a little less than $5000 sitting in the company bank account doing nothing.

7. Later down the track, company may need to review fringe benefits tax return or employee contributions for the private use of the vehicle being used by an employee, director or shareholder of the company, which may result in more tax to pay.

 

Now in the director's tax return, she claims a tax deduction on the hire fee for the $5000.

 

I don't see a commercial benefit to this arrangement, it just sounds like you are creating an extra company thinking it will save on tax, by accessing the instant asset write off, but really you're now stuck with paying ASIC annual filing fees, company tax return, business bank account fees, you have money trapped in the company that you don't want to draw as wages, and there are no profits to pay as a dividend.

 

I could be wrong, and welcome anyone else's input who may have this structure in place, or has planned one up similar to this.

 

 

4 REPLIES 4

Most helpful response

Devotee Registered Tax Practitioner

Replies 3

Hi Jay8, I'll give you some things you may wish to consider before going ahead with your idea.

 

Rideshare platforms generally require that you trade as a sole trader in your individual capacity.

 

Did you receive any advice on this structure or plan?  What are you trying to achieve?

 

Let's think this through a little.

1. Director lends $35,000 to ABC company.

2. ABC Coy buys the director's car at market value / arms length for $35,000, pay stamp on transfer for the new registration, insurance, etc.

3. Company is a small business in the business of leasing motor vehicles, and claims the full $35,000 as an immediate deduction.

4. ABC company leases the vehicle back to the director at market rates.  Lets say it's 35,000 over an effective 8 years, so 4375, so lets round it up to 5000 hire fee.

5. ABC coy makes a loss in the first year and has (30,000) loss, and the director would have to inject more than $35,000 to cover stamp, registration, insurance.

6. Director is also paying lease fees into the ABC coy, so now there is a little less than $5000 sitting in the company bank account doing nothing.

7. Later down the track, company may need to review fringe benefits tax return or employee contributions for the private use of the vehicle being used by an employee, director or shareholder of the company, which may result in more tax to pay.

 

Now in the director's tax return, she claims a tax deduction on the hire fee for the $5000.

 

I don't see a commercial benefit to this arrangement, it just sounds like you are creating an extra company thinking it will save on tax, by accessing the instant asset write off, but really you're now stuck with paying ASIC annual filing fees, company tax return, business bank account fees, you have money trapped in the company that you don't want to draw as wages, and there are no profits to pay as a dividend.

 

I could be wrong, and welcome anyone else's input who may have this structure in place, or has planned one up similar to this.

 

 

Newbie

Replies 0

Thank you Dbooks for replying in detail, let me put it this way, what I want to achieve is that I want to loan money to my newly formed company little over the actual price of a car, company buys a car for renting (rideshare purposes) to an outsider,  on the other end I am the guy who rents the car from company and pay weekly rental to the company, what I am trying to achieve is I want to give loan to the company so that gradually I can increase my portfolio from one car to 3 cars in next 5 years obviously for rideshare rentals, my intention is to get the money back from company which I am investing right now, meanwhile claiming weekly rental that I am paying to the company and by this way I want to deduct weekly income of x amount that will be paid to the company and on the other end company will only pay tax on the total income after expenses so the car expenses except fuel like maintenance and repair will come from company pocket like any other ordinary rental agreement and will after certain time when company has paid off the vehicle now its saving the money for next vehicle that weekly rental money that company is getting from my it can stay in company account and up on enough saving I can buy a next car under company name and rent it to someone else. This is my intention I hope I was able to explain it properly in simple words consider a model of a rental company who rent car for ride share purposes, people go there and rent a car drive it for rideshare and pay weekly rent for the vehicle, in current scenario I am the director of the rental company however I am also wanting to be the client of the company to rent the car from it.

Newbie

Replies 1

My apologies I was not clesr enough in my question, when I said "lease" I meant to say "rental" 

ATO Community Support

Replies 0

Hi @Jay8

 

Just to add to the information @dbooks has provided.

 

As a ride-source driver you'll be required to apply for an ABN and register for GST. That would mean you'll need to lodge quarterly BAS for yourself and pass on GST amounts collected. 

 

Its important to ensure you maintain accurate records.

 

Ari