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Leasing a motorcycle through my own Pty Ltd company

Discussion in 'General Motorcycling Discussion' started by Morbo28, Apr 21, 2009.

  1. Hi all,

    I'm changing my consulting business from a Sole Trader to a Pty Ltd company. I will be working at several offices around Melbourne so will commute on a motorbike from now on. I have spoken to my accountant about leasing a motorcycle instead of buying one outright (either way he said it'd be fine to put it through the company).

    There is a few more details he's going to get for me and I need to sit down and do the sums. I'm either going to get a Jap I4 or a Daytona 675 (let's be honest...probly the Daytona - but before you say anything about that, people also said commuting on a 2 stroke would be a bad idea, but I loved it!). I'd either lease a new bike or buy a second hand bike but either way I think it'd be through my own company.

    But I wouldn't mind hearing if anyone else has done this before? I read through this thread but this was a different setup - it was asking about trying to convince OP's employer to do a novated lease, though there was also some good info in it.

    There is also a 30% rebate thing in addition to std depreciation that the accountant mentioned which would only qualify if buying new.

    So have you done this with your own company? Would you recommend doing the lease or buying outright? Have you run into any issues doing this?

  2. Speak with your Accountant. You will get the best advice from him/her.
  3. I always run everything through my accountant :wink: and there is still more info he's getting for me.

    But it never hurts to hear from personal experience, preferences and ideas...feel free to share comrades :cool:
  4. You'd need to think more along the lines of affordability per se' and whether you want your business to have an asset (outright purchase) or an addition to the expense line (lease). If the turnover can handle a bottom line hit i'd favour lease as the tax benefits are immediate and total, purchase only gives you depreciation annually and running costs as they occur. I made the choice to purchase outright for the first vehicle and then a few years later I leased the second (when sole trading). My industry took a nose dive for a year and the lease option was a struggle but doable, but there wasn't any real room for expense consolidation and reduction strategies when req'd. Besides which you've got a balloon payment to be ready for. Your accountant is the place to get this answered to be honest, none of us here know your trading position or your 5yr plan
  5. like other people have said, talk with your accountant as he'll be in the best position to give advice. However because of my job I do see plenty of leasing through companies and it can definitely work well for some people, although this is cars, never a bike. If you do decide to lease the next few months will be the time to do it as I dont see lease rates moving much lower then what they are now.

    Just want to point something out with the 30% rebate from the government. When doing your sums, don't rely on this to see if you can afford it or not because although the government has promised the rebate it hasn't actually passed as legislation and it may still get knocked back. Especially after the alcopop tax worked so well :p
  6. I've only ever leased cars but can certainly recommend it. The benefits differ depending on annual salary but if the sums work out then why not do it.

    Buying new would be easier. For cars most leasing companies get a fleet discount however I doubt this would apply for a bike. The problem with 2nd hand (especially from a dealer) is that the leasing company will only finance what they think the bike is worth. This most likely wont include dealer charges, huge mark up etc

    The beauty of the lease is that all running costs are bundled up into a yearly cost based on an assumed number of km's and you pay this amount per month. This payment is a business expense so you don't pay tax on it and you don't pay GST. Running costs include insurance, tyres, petrol, maintenance, etc. For the term of the lease you dont have to pay anything out of your own pocket.

    The catch is the fringe benefit tax. This is based on the km's driven as per the running costs. It used to be a different rate for up to 15000km, 15000-20000 and over 25000.

    It is cheaper the more km's you do but then you have to remember you want to sell the bike at the end of the lease. There is a balloon payment on the finance at the end of the lease but this is normally slightly less then the assummed market value at that time. If you've done a lot of km's to reduce the FBT then you may affect the resale value of the bike and not cover the balloon payment.

    Adjustments are done on everything at the end based on actual costs. So if you set it up on 15000km per year then did 20000km an adjustment is made on FBT and all running costs will be based on actual. If they have taken to much money from you over the term of the lease it is paid back less income tax.

    I'm not an accountant so as people have said listen to your accountant.

    These are just things I learnt when I leased two cars although the last one was six years ago so a few things may have changed slightly.
  7. Check with your insurance company as well. Insurance in a company name can be a lot higher than a privately insured bike!

    I did not buy my bike new, but it is in a company name and I depreciate it. I'm not a fan of leasing - paying a heap extra just to have more to claim off tax is not always the best in the long run!
  8. Yes I was thinking I would buy new if I went the leasing option. The other option is to accumulate cash in the company, buy a second hand bike outright and then still get the benefits of the company paying for all running costs. I would just use the company credit card for these.

    Very good point about the insurance company - I'll definitely find that out, Thanks!

    And yep I'd depreciate the second hand bike if I bought it outright.

    Excellent points everyone - it's good to have different points of view to consider when making the decision and as everyone says, any final decision will have to get the okay from my accountant.
  9. Be careful with depreciation though. OK if you buy a Japanese bike that will plummet in value, but if you depreciate a bike that might keep its value (a Ducati say :grin: ). When you sell in a few years time and if it is worth more than your depreciated value, you will need to pay capital gains tax on the differance.
  10. Righto, I'll keep that in mind, ta.

    I'm really quite conservative with the financial side of the business, alwayd overestimating expenses slightly, and underestimating income. Then I either have a little bonus each FY/quarter or I have cushion room for unexpected expenses.

    I know the % for leasing is down quite low at the moment (3.x%), another reason to consider it. And it's fixed rate for the term.
  11. I tried to do this about eight years ago when I was self-employed. My accountant at the time was doubtful, and eventually confirmed that (back then) any tax deductions would be disallowed by the ATO. He said there was a clause specifically ruling out travel deductions for motorcycles unless being used exclusively for courier purposes by a full time courier.

    Hopefully that may have changed, but I don't know.
  12. In which case sell for cash and write a lower value on the rego slip.

    When i looked into this a while ago with my accountant, i couldn't make it attractive enough to lease a bike. Claiming straight kms for business use was far less attractive for motorcycles than for cars which is unfair.

    So I opted to use a loophole and claim against my wife's car of which she also claims via logbook.
  13. Well actually that is the other option, for the company to buy our car off us and do all the hoo-haa on that. And have a personal bike.

    It's basically down to:
    1. Lease (new) bike through company
    2. Buy second hand bike outright through company
    3. Put car though company and buy personal bike

  14. Why not buy new car and new bike and lease both?

    Claim the car on a logbook and claim the bike either on logbook or based on fixed kms. If the bike does low annual kms claim 95% as business related with your justification being you only use it for CBD meetings and parking is free for bikes etc.

    How much risk are you willing to take in case you get audited? Providing you can justify it you are ok as that is the key. If it's a bit of a reach to justify it, well you might want to weigh up the risk/reward ratio. Ie don't go leasing sewer pipes overseas and claim it as a tax deduction LOL.

    *Edit, my forum posting is going mental??
  15. Id like to understand how this 30% rebate thing works that’s been advertised around the local rags. Can anyone elaborate?
  16. I would have thought the FBT on a 'personal' bike would kill you - you don't get concessional FBT like you do for a car. You'd pay FBT on every dollar spent on the bike, excluding $ spent on business purposes.

    I believe you'd have to do a logbook and claim actual costs incurred for the bike (hence the courier bike example above). Would probably only work if it is actually high business kays.

    I don't think the leasing approach would quality for the 30% rebate?

    Depending on your kays, you'd be better off putting the car in the company and buying (leasing?) a personal bike. And you don't need to have a brand new car into the company to get the FBT benefits.
  17. +1 or just leave the company car at the work premises (separate from you house) and avoid FBT altogether.

    FBT is another kettle of fish completely but you will need to figure it out which ever way you go. I would be trying to avoid it (legally mind you) so as not to have complete another tax return for the year.

    Talk to your accountant or the tax office its about the best advice I can give.
  18. *deep breath* This will be a slightly long post, but hopefully it answers your question...

    Using companies and other structures in order to gain a tax benefit is a rather tricky science. Remember that your accountant makes money from it all regardless of if it is of any benefit to you (after all, he will likely do not only your personal income tax return, but also your company's returns and BASs!). To find out if it's worthwhile it is something you really need to do the sums on.

    For income tax you have two routes - you can either go lease route, or buy outright route (both of which you have identified). For the lease route you can claim an instant deduction for the lease payments (ie. what you pay in a year is what you deduct from your company's income). For the buy outright route you claim a deduction for the price through the uniform capital allowance system (ie. it is a depreciating asset with a limited life span so you claim the cost over the life of the asset). There are two ways to do this - prime cost method (PCM) and diminishing value method (DVM). DVM allows the taxpayer a larger deduction in each of the first few years and then a progressively smaller annual deduction, as the asset nears the end of its effective life. PCM assumes that the decline in value is uniform over the effective life of an asset, so you claim the same amount each year.

    To calculate the depreciation of your bike under DVM, the formula is:
    (base value) x (days held in the year/365) x (2/asset's effective life)

    The 'base value' is the purchase price of the bike minus all amounts deducted for depreciation in previous years. The effective life of a bike is 6 and 2/3 years.

    So for example, on a $10,000 bike bought on 1 July (first day of the financial year):
    1st year = 10,000 x 1 x 2/6.666 = $3,000
    2nd year = (10,000 - 3,000) x 1 x 2/6.666 = $2,100
    3rd year = (10,000 - 3,000 - 2,100) x 1 x 2/6.666 = $1,470
    And so on for 6 and two third years.

    To calculate the depreciation of your bike under PCM, the formula is:
    (asset's cost) x (days held in the year/365) x (1/asset's effective life)

    For example, again using a bike that cost $10,000 bought on 1 July:
    1st year = 10,000 x 1 x (1/6.666) = $1,500
    2nd year = 10,000 x 1 x (1/6.666) = $1,500
    3rd year = 10,000 x 1 x (1/6.666) = $1,500
    And so on for 6 and two third years.

    In addition to claiming the deduction for the depreciation or the cost of the lease, you can also claim deductions for running costs (eg. petrol, tyres, etc; so long as your company pays for them) and input tax credits for the GST on any expenses (lease costs, outright purchase and running costs) if you are registered for GST.

    The MOST important thing to remember with claiming these expenses (and something a lot of people forget) is that you (that is, your company) only get $0.30 to every $1.00 spent back (or rather, you don't pay any tax on that $1.00 spent). This means your company is still $0.70 out of pocket after tax. Too many people go out of their way to claim tax back (and engage in negative gearing) without realising that you only pay tax on money you earn, and only get tax back on money you lost. Unless you are being taxed at over 100% you will never make money out of tax deductions, only get some of your expense back. That said, the whole point of this is to find the circumstances which mean you legally pay the least amount of tax you have to (which is quite legitimate).

    Then there is fringe benefits tax. FBT is tricky bugger, and is really only super beneficial when you don't own the business/company paying it (after all, when you own the business, FBT comes out of your pocket, even though it has the businesses name on it). Fringe benefits can be useful in some cases however,. For a motorcycle, the FBT benefit (which is what is taxed) can be calculated by one of three methods:

    operating cost method (where there isn't extensive business use)
    cents per kilometre method (where there is extensive business use)
    hire fee (a rate equivalent to the cost of renting a similar vehicle)

    For a bike, the cents per km rate is 13 cents.

    The amount of the benefit you would be taxed on, using the cents per km method, would be the number of km traveled in private use on the bike in the year multiplied by $0.13. The value of the benefit is then 'grossed up' (multiplied by 2.0647), and that value then has the FBT rate applied to it (so multiply it by 0.465). Hey presto, the amount of FBT you owe for a bike owned by your employer! Keep in mind that in this case the employer (ie. your company) would pay for all fuel and other operating costs, which they in turn can claim as a deduction and input tax credits for if they are registered for GST (that means 30c for ever dollar spent is returned from the company's income tax, and 10c for every dollar is returned as an input tax credit).

    Say you do 10,000km on the bike in a year (in personal use). The calculation would be as follows:
    10,000 x 0.13 = $1,300
    1,300 x 2.0647 = $2,684.11
    2684.11 x 0.465 = $1,248 worth of FBT that your company will need to pay.

    The real bonus for motorcycles and FBT is that the legislation is a lot less onerous when it comes to records to prove how many personal kms you have traveled. You don't need to keep detailed log books or the like (though that wouldn't hurt if you get audited). You only need to keep enough records to show a sound basis for the calculation.

    This all has to be contrasted with the other route - own the bike yourself and claim income earning expenses the old fashioned way. You don't have to pay FBT, which is a plus, but you need to wear all costs your self, then claim a deduction on your assessable income based on an apportionment of running the bike by business use (for example, if 40% of your bike usage is for the purposes of your business, so how you make money, then you claim 40% of all expenses paid for the bike as a deduction, this would include petrol, tyres, servicing, etc). If you are an employee of your own company (rather then a sole trader) you can't claim any GST input credits by taking this route. But that may not be an issue if you don't want to register (and don't have to) for GST anyway.
  19. 30% Investment allowance applies to plant & equipment that costs >$1000 if you are an SBE and >$10,000 if non SBE and also has to be primarily for business use. Also has to be purchased by 30/6/09 and installed by (if applicable) by 31/12/09.

    It is an additional tax deduction, not a rebate you receive in your pocket or anything. So if you buy a peice of equip for $10,000 ex gst you get a one off 30% deduction to the value of $3,000.

    Only applies to business entities not salaried employees.

    as someone said earlier it hasnt actually passed as legislation yet. So it could get squashed and that would be that.

  20. +1 - was vaguely aware of cents per km. Just to re-emphasise, it probably only works for the OP, as a person who owns the business and does a lot of business travel on the bike. Otherwise you have to use operating cost method - which isn't anywhere near as good.

    If you just use the bike (or <shudder> a scooter) to go to work and back again (and 'incidental, infrequent' private trips), you can actually package it, it seems, exempt of FBT.