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Is my friend in business? Renting out motor vehicle

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Newbie

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                                        Hi,

My friend bought a big Mercedes van and making it RV ( recreational vehicle ). When it will be completed he plans to use it privately sometimes and rent it out other times via sharing websites. Is it considered for him to conduct a business? How should it be treated on tax return if he will have income from renting it out?

Thank you

 

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ATO Certified

Devotee

Replies 1

Hi @Galina

 

Great questions! 

There's no definitive test that determines whether someone is in business, but there are a number of factors that all businesses have in common:

  • Your friend has made a decision to start a business and has done something about it to operate in a businesslike manner, such as
    • registered a business name, or
    • obtained an ABN.
  • Your friend intends to make a profit – or genuinely believes they will make a profit from the activity – even if they're unlikely to do so in the short term.
  • He repeats similar types of activities.
  • The size or scale of the activity is consistent with other businesses in the industry.
  • His business activities are planned, organised and carried out in a businesslike manner. This may include    
    • keeping business records and account books
    • having a separate business bank account
    • operating from business premises
    • having licenses or qualifications
    • having a registered business name.

We also have a detailed Starting your small business guide and links to resources supporting small businesses that your friend may find helpful!

 

Under the simplified depreciation for small business rules, from 7.30pm (AEST) on 12 May 2015 until 30 June 2019 businesses can:

  • immediately deduct the business portion of most depreciating assets that cost less than $20,000 each in the year the assets was bought and used (or installed ready for use)
  • pool the business portion of most other depreciating assets that cost $20,000 or more in a small business asset pool and claim    
    • a 15% deduction in the first year (regardless of when the assets were purchased or acquired them during the year)
    • a 30% deduction each year after the first year
  • write-off the balance of the small business pool at the end of an income year if the balance, before applying any other depreciation deduction, is less than $20,000.

The entire cost of the asset must be less than the instant asset write-off threshold, irrespective of any trade-in amount. 

 

Your friend will need to subtract any private use proportion when calculating their deduction at tax time. The proportion of the asset used in earning assessable income is generally the taxable purpose proportion. While only the taxable purpose proportion is deductible, the entire cost of the asset must be less than the threshold.

 

Check out our instant asset write-off guide to find more information (including example calculations). 

 

Hope that helps!

4 REPLIES 4

Devotee

Replies 3

Yes he is running a business.

 

Any income from renting out the vehicle should be declared as business income.

Any expense related to running the business should be claimed at the business use %.

 

For example, in a year he drives it 10,000 km for personal use and 10,000 kms as a business then 50% of running costs can be claimed including depreciation from the time it was first used in a business.

 

https://www.ato.gov.au/Business/Income-and-deductions-for-business/Deductions/Motor-vehicle-expenses...

 

Newbie

Replies 2

Thank you for your reply.

If he is running a business would he be entitled to Instant assets write off for business portion of the RV?

Thank you

Best answer

ATO Certified

Devotee

Replies 1

Hi @Galina

 

Great questions! 

There's no definitive test that determines whether someone is in business, but there are a number of factors that all businesses have in common:

  • Your friend has made a decision to start a business and has done something about it to operate in a businesslike manner, such as
    • registered a business name, or
    • obtained an ABN.
  • Your friend intends to make a profit – or genuinely believes they will make a profit from the activity – even if they're unlikely to do so in the short term.
  • He repeats similar types of activities.
  • The size or scale of the activity is consistent with other businesses in the industry.
  • His business activities are planned, organised and carried out in a businesslike manner. This may include    
    • keeping business records and account books
    • having a separate business bank account
    • operating from business premises
    • having licenses or qualifications
    • having a registered business name.

We also have a detailed Starting your small business guide and links to resources supporting small businesses that your friend may find helpful!

 

Under the simplified depreciation for small business rules, from 7.30pm (AEST) on 12 May 2015 until 30 June 2019 businesses can:

  • immediately deduct the business portion of most depreciating assets that cost less than $20,000 each in the year the assets was bought and used (or installed ready for use)
  • pool the business portion of most other depreciating assets that cost $20,000 or more in a small business asset pool and claim    
    • a 15% deduction in the first year (regardless of when the assets were purchased or acquired them during the year)
    • a 30% deduction each year after the first year
  • write-off the balance of the small business pool at the end of an income year if the balance, before applying any other depreciation deduction, is less than $20,000.

The entire cost of the asset must be less than the instant asset write-off threshold, irrespective of any trade-in amount. 

 

Your friend will need to subtract any private use proportion when calculating their deduction at tax time. The proportion of the asset used in earning assessable income is generally the taxable purpose proportion. While only the taxable purpose proportion is deductible, the entire cost of the asset must be less than the threshold.

 

Check out our instant asset write-off guide to find more information (including example calculations). 

 

Hope that helps!

Newbie

Replies 0

Thank you Amanda. I still have a few questions yet, but will get back to it later. Thank you again for your help.

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