By: Max Newnham
It is an unfortunate fact of life that too often business owners have a total aversion to paying income tax. This can lead to earning too much black money, that the owners hope to hide from the tax man, and also can result in tax deductions being maximised without considering whether the cost adds value to the business.
When it comes to income that becomes part of the black economy there can be two unintended results. The first is obesity and liver failure because black economy revenue can only be spent on life’s luxuries that cannot be traced. The second results in the profit of the business being decreased, which makes the business less valuable when the owner wants to sell it.
Q. I want to purchase a new Hilux ute on finance that will cost $45,000 and I currently make around $50,000 a year. I work as a bush firefighter for three to four months and I plan to start a business selling ice cream at markets on the weekend. Is it worthwhile me purchasing such an expensive car and will I be able to claim much on it?
A. I am glad to see that you are questioning whether buying the expensive ute will be worthwhile for your business.
If buying the ute you result in you having a more reliable vehicle with less downtime as a result of it not breaking down, you can do more things with the vehicle and increase your chances of earning income, and your running costs including repairs will be reduced, it makes sense to buy it.
The tax deduction you can claim will depend on the business use of the vehicle. You should keep a log book that accurately reflects your business usage while in the bush and when you are running your ice cream business. It is highly likely that you will have a high percentage of business-use kilometres.
Some people buy a ute mistakenly thinking that they can claim 100 per cent of the running costs without keeping a logbook. The only time that a ute can be classed as 100 per cent business use without a logbook is if the private travel is limited to between home and work or business, and other private travel is of a minor, infrequent, and irregular nature.
If you use a hire purchase contract you can claim the interest on the finance and depreciation. On a $45,000 vehicle as a small business owner you can claim the business use portion of 15 per cent depreciation of the $45,000 cost in the first year of $6750, and then 30 per cent of the reduced balance each following year. In the second year this would amount to $11,475.
On an income of $50,000 a year you would need to be careful that your total tax deductions did not reduce your income to below $20,320, which result in you not paying any tax and effectively wasting the tax deduction.
Source: The Age
