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Hi,
My question is in two parts, but relates to company car purchase, so have deemed this to be a simple question.
I started a private company (GST registered, sole director, transferred from Sole Trader structure) in 2021 and am also continuing the sole trader business (has ABN) that was started in 2019. I started the company because a) it needs to be GST registered due to turnover and the other does not, and b) they are completely separate business areas so it makes sense to have different business entities for each. The company is wholly owned by a family trust of which I am trustee.
I have a private vehicle (trade ute) that is used predominantly (> 80%) for business purposes (used for both company and sole trader operations) and I claim cents per km currently. I would like to transfer this to the business.
Question:
Is it possible to transfer my private vehicle to both the company and the sole trader business (each entity owns half of the asset), as it is used about 50/50 for each operation, and can I claim the instant asset write-off in each business for the portion of the asset owned by each, deducting any personal use portion?
If this is not possible, I would likely transfer the vehicle to the sole trader business, and if so, are there any pitfalls with instant asset write-off, considering the ownership still rests with me as both sole trader and the vehicle owner?
Answer
First up for all intents and purposes the ute is already owned by the sole trader business ie you.
The idea of selling the ute or half of the ute to your company and claiming an immediate write off troubles me because it has been previously owned by and claim for by an associated entity – You
While there is technically no law against you transferring the ute to another entity and them writing it off providing they otherwise qualify, I am worried about Part IVA – basically scheme with a dominant purpose of a tax benefit. See quote from LCR 2021/3 below.
LCR 2021/3
“161. However, there is always a potential for integrity rules, such as Part IVA of the Income Tax Assessment Act 1936, to apply to arrangements whose features suggest they are driven by tax, rather than commercial, outcomes. Without limiting the scope of arrangements to which integrity rules in the tax law may apply, a focus for the ATO will be arrangements involving transactions between related parties that facilitate the claiming of TFE, and potentially also loss carry-back tax offsets, without any increase in the business asset base of the economic group.
Now if you just transfer the ute to the company it makes perfectly good business sense so not dominant purposes of a tax benefit. It is the sharing of the ute 50:50 that is a bit on the nose.
Also consider that you must transfer the ute to the company at its current written down value which may not be much and that is all you are going to get to write off. Then you have the FBT complication of the ute being used for some private purposes yet owned by your employer – the company. If this is just an old run around it might not be worth the stamp duty and admin costs but I don’t know enough about the ute to decide this. On the positive side having it held by the company will me you can claim back the GST on the fuel, repairs etc.
