Purchasing and operating an aircraft under a company
Join Date: Aug 2009
Location: Australia
Posts: 632
Likes: 0
Received 0 Likes
on
0 Posts
Dash, the advantage to operating an aeroplane under a company structure is that it will certainly make a loss and that loss can be used to off-set gains (profits) made from other company revenue sources.
Just to add a small point, jus' in case someone's still thinking about the SMSF option - a superfund can not operate a business.
So it can not own an aeroplane and lease it out directly, whilst doing maintenance & 'stuff'. However, like any "asset" ( I know ... I own one ... I shouldn't call it an asset - sorta/kinda implies 'appreciation' to me) it could be owned by a SMSF and then leased to an operating company. I'm tipping that the cost of that round-robin would outweigh any tax "savings".
My number 1 financial rule? I don't try to minimise tax - I look to maximise returns. I know too many people who spend $2 to 'save' $1 in tax. Just my $0.02 worth (after tax - naturally)
So it can not own an aeroplane and lease it out directly, whilst doing maintenance & 'stuff'. However, like any "asset" ( I know ... I own one ... I shouldn't call it an asset - sorta/kinda implies 'appreciation' to me) it could be owned by a SMSF and then leased to an operating company. I'm tipping that the cost of that round-robin would outweigh any tax "savings".
My number 1 financial rule? I don't try to minimise tax - I look to maximise returns. I know too many people who spend $2 to 'save' $1 in tax. Just my $0.02 worth (after tax - naturally)
SMSF is required to have an investment strategy which the trustees must follow and certify compliance with at EOY. IMHO you would need to have the aviation bit in that document.
In a more genral vein I dont think ownership works (over renting) unless you fly over 300 (ballpark) hours per year.
In a more genral vein I dont think ownership works (over renting) unless you fly over 300 (ballpark) hours per year.
Yep, 300 hours a year would be a good ballpark for owning a VH aeroplane versus hiring. I hear horror stories of $10,000 inspections, so you wouldn't want to amortise that over 100 hours. Even a fully insured recreational category aircraft needs to do 100 hours to break evens on cost of hiring and the better ones in this category now go out the door at about $150 an hour.
I beat the low hour odds by not carrying hull loss insurance (because it is ridiculously high) and figure at 100 hours a year it still costs me about 60 bucks an hour including fuel to run a little two seater that only burns 15 litres of 98 octane mogas an hour. I do all my own maintenance, for which I charge myself nothing. Maintenance time averages about two hours for every flight hour (yes, agreed - I am a bit slow on the spanners!). Hangarage is free if I don't count the cost of having bought it in the first place.
I looked at a 180 hp Mooney and figured my costs would quadruple if I did the same hours, because straight away I would be in the hands of a friendly workshop at $80 an hour for maintenance and up for certified parts as opposed to automotive stuff allowed in much of an RA machine. A Mooney is not so much faster than the bugsmasher I fly, and the miles per gallon of this most efficient GA machine are still half what I currently get, so the only gains would be some comfort and the potential to upgrade to IFR.
Whatever hours you think you will do in private operations, halve them, double your estimates for inspections, then do the sums.
I beat the low hour odds by not carrying hull loss insurance (because it is ridiculously high) and figure at 100 hours a year it still costs me about 60 bucks an hour including fuel to run a little two seater that only burns 15 litres of 98 octane mogas an hour. I do all my own maintenance, for which I charge myself nothing. Maintenance time averages about two hours for every flight hour (yes, agreed - I am a bit slow on the spanners!). Hangarage is free if I don't count the cost of having bought it in the first place.
I looked at a 180 hp Mooney and figured my costs would quadruple if I did the same hours, because straight away I would be in the hands of a friendly workshop at $80 an hour for maintenance and up for certified parts as opposed to automotive stuff allowed in much of an RA machine. A Mooney is not so much faster than the bugsmasher I fly, and the miles per gallon of this most efficient GA machine are still half what I currently get, so the only gains would be some comfort and the potential to upgrade to IFR.
Whatever hours you think you will do in private operations, halve them, double your estimates for inspections, then do the sums.
Last edited by Mach E Avelli; 27th Jun 2012 at 00:16.
a friendly workshop at $80 an hour for maintenance
He really would be friendly at that price. Your friendly Ultra Tune for your car is a good deal more than that. ( approx $105-$110 an hour).
Join Date: Aug 2009
Location: Australia
Posts: 632
Likes: 0
Received 0 Likes
on
0 Posts
50 bucks an hour for the friendly local RA-Aus level 2 (and 3 and 4) at Gawler. ex-LAME (still works with other LAMEs on GA aircraft), knows his stuff. Doesn't have an expensive shop (or Class D hangar) or staff.
I was even surprised at the affordability of my latest RAD43/47 from David Foord, on his own property near Goolwa. Took one of his boys a while too to get it right (I reckon this is the last time I get this ACK re-adjusted, replacement next time) and needs expensive equipment to do it.
If you shop around and go away from major GA airport, there's good deals to be had.
I was even surprised at the affordability of my latest RAD43/47 from David Foord, on his own property near Goolwa. Took one of his boys a while too to get it right (I reckon this is the last time I get this ACK re-adjusted, replacement next time) and needs expensive equipment to do it.
If you shop around and go away from major GA airport, there's good deals to be had.
Join Date: Nov 2007
Location: Mars
Posts: 373
Likes: 0
Received 0 Likes
on
0 Posts
In a more genral vein I dont think ownership works (over renting) unless you fly over 300 (ballpark) hours per year.
Insurance $4500, maintenance (presuming your LAME is not a psycho - many are
) $4000, hangarage (presuming you are not in a Rolls Royce hangar in some posh Class D facility), $2000, engine/prop $2500, fuel $9000, capital $2000(?) (what are you getting on cash now.. and paying tax on it?) Depreciation is not much of an issue. Planes are not going up like they used to but if you buy sensibly and keep it nice, you should do OK when you come to sell. (unlike cars that lose half their value as you drive out of the showroom!)Adding a bit for contingencies, budget say $25k per year(?) or $167 per tach hour, which would equate to maybe $150 per VDO hour in your logbook. Can you rent a nice modernish $150K 172 for that? (No, not a 35 year old 15000 hour cr@pbox!)
So you don't want to fly 150 tacho hours per year? No worries. Sell 50 hours to your mates at $180 per VDO hour and you have recovered $9000 of your annual costs and reduced your own hourly rate still further and you could still end up putting 110-120 VDO hours into your logbook. For that you get something to love and cherish,
, no one can book it before you, you can go anywhere any time you like and hopefully lots of fun (and maybe the odd nights lost sleep, but things always feel better in the morning!) Whatever you do, DON'T be tempted to put it on line... Your costs will double, your plane will be wrecked, they will let any Tom, Dick or Harry fly it (Tom and Harry might be alright but there are Dicks who don't respect anyone's property). Stay away from capital city/class D airports too - they're horrible anyway and you only end up paying Macquarie bank or someone similar through the nose.Talk to your accountant .. If you rent some of it to others there might well be ways to reduce your costs for the faction you rent out.
There you are, a little business plan for you. What the hell - Your super is going nowhere and is just an under performing nightmare and you can't take it with you anyway. Buy a plane and put some energy and sunshine back into ths doom and gloom GA industry - and have some fun! (and maybe a poor nights sleep now and then.)
Moderator
$150K Cessna 172, 150 hours per annum.
Insurance $4,500 per annum = 3% hull insurance, plus passenger liability, plus public liability. That sounds very reasonable?
Maintenance labour $4,000 = at a very reasonable $80 per man hour, max 50 man hours per 150 hours = average 33.3 man hours per 100 hours. Maybe.
Maintenance Parts - no provision?
Engine/prop $2,500 per 150 hours = $16.67 per hour, $33,333 for the full life of the engine and prop. That sounds like a "Dulux" overhaul and assumes no top overhaul, cylinder change or other repair is required during the life of the engine.
You got a cheap deal there dude!
.
I certainly loved and cherished the seven or so aircraft I've owned over the years, particularly on the day I bought them and on the day I sold them. I don't recall any great feelings of compassion in between!
Insurance $4,500 per annum = 3% hull insurance, plus passenger liability, plus public liability. That sounds very reasonable?
Maintenance labour $4,000 = at a very reasonable $80 per man hour, max 50 man hours per 150 hours = average 33.3 man hours per 100 hours. Maybe.
Maintenance Parts - no provision?
Engine/prop $2,500 per 150 hours = $16.67 per hour, $33,333 for the full life of the engine and prop. That sounds like a "Dulux" overhaul and assumes no top overhaul, cylinder change or other repair is required during the life of the engine.
You got a cheap deal there dude!
For that you get something to love and cherish....
I certainly loved and cherished the seven or so aircraft I've owned over the years, particularly on the day I bought them and on the day I sold them. I don't recall any great feelings of compassion in between!
Join Date: Nov 2007
Location: Mars
Posts: 373
Likes: 0
Received 0 Likes
on
0 Posts
Insurance: shop around Dude, you'd be surprised. Noone should be paying 3% and you don't need passenger liability cover unless in charter cat and on someones AoC and used in charter. That's a different ball game especially where maintenance costs are concerned.
Maintenance: well, true, that's where you're most vulnerable. Shall we start a 'how much do you pay for an annual on your c172? thread?' I bet you'd still get some under $2000. I'm sure you'd get some at $15,000 too. Don't forget if in private category, you don't need a 100 hourly... Just an annual. Can save even more if you like doing your own oil changes and the like. A few LAMEs will still let you 'help out' with the annual too. (as long as you can convince them your not an incompetent idiot... Not an easy task because they often think everyone else, especially the last LAME is.:-). That all important relationship with your LAME is the key to keeping maintenance costs under control. Don't imagine you can walk into any shop and get a predictable and reliable price... Your LAME needs to know your plane. (and you) Engine and prop can run 'on condition' too and many (outside of charter) go well past 12 year calendar TBO but few LAMEs seem keen to go past the 2000hr TBO, although under Eng4, in theory, they could. A lycoming IO360 in a modern 172 is just purring along and in regular private use, if treated properly, could and should go to TBO without significant unplanned maintenance.
Nah, if you can't run a private 172 for 150 hours for 25grand/year something's wrong. I hate to see all this 'don't do it' gloom and doom around. I've owned even more planes than Tailwheel btw and might even have a couple for sale right now... :-) Let's get ths industry moving.... Cus its deader than a Dodo right now. Pruners, Rush out!!! Buy a plane it just does not have to be as desperate, expensive or risky as you think and really can be cost effective for the average private pilot, you can offset cost by selling a few hours and its a lot of fun! (mostly).
Maintenance: well, true, that's where you're most vulnerable. Shall we start a 'how much do you pay for an annual on your c172? thread?' I bet you'd still get some under $2000. I'm sure you'd get some at $15,000 too. Don't forget if in private category, you don't need a 100 hourly... Just an annual. Can save even more if you like doing your own oil changes and the like. A few LAMEs will still let you 'help out' with the annual too. (as long as you can convince them your not an incompetent idiot... Not an easy task because they often think everyone else, especially the last LAME is.:-). That all important relationship with your LAME is the key to keeping maintenance costs under control. Don't imagine you can walk into any shop and get a predictable and reliable price... Your LAME needs to know your plane. (and you) Engine and prop can run 'on condition' too and many (outside of charter) go well past 12 year calendar TBO but few LAMEs seem keen to go past the 2000hr TBO, although under Eng4, in theory, they could. A lycoming IO360 in a modern 172 is just purring along and in regular private use, if treated properly, could and should go to TBO without significant unplanned maintenance.
Nah, if you can't run a private 172 for 150 hours for 25grand/year something's wrong. I hate to see all this 'don't do it' gloom and doom around. I've owned even more planes than Tailwheel btw and might even have a couple for sale right now... :-) Let's get ths industry moving.... Cus its deader than a Dodo right now. Pruners, Rush out!!! Buy a plane it just does not have to be as desperate, expensive or risky as you think and really can be cost effective for the average private pilot, you can offset cost by selling a few hours and its a lot of fun! (mostly).
Cleared, 3% is a pretty standard rate for on-line aircraft, you can get cheaper for private operators. In the past anything less than 3% for on-line was fantastic until you had to claim, a bit like claiming off budget car insurers. 3% has nothing to do with liability, its a hull loss calculation based on the chance of the aircraft being damaged. Passenger liability like home liability insurance is a tiny part.
Maintenance is very variable and mostly based on the aircraft, not the maintenance provider. You may be able to save some money in the short term by stalling certain things until they break but they catch up in the long term. A good engineer can save a few dollars by good parts management and knowing exactly when things are due but its not huge compared to the overall cost of maintaining an aircraft.
Go cheap short term pay more long term, you get what you pay for in aviation eventually.
The original thread is about a company funded aircraft, having one aircraft you are willing to subsidise with your own time to barely break even does not count.
* Forgot to add that the tax laws concerning aircraft did change a few years ago so it pays to get accountants involved who know what they are doing. The revisions particularly involved older aircraft as i understand which is why cheap twin charter aircraft became very scarce suddenly.
Maintenance is very variable and mostly based on the aircraft, not the maintenance provider. You may be able to save some money in the short term by stalling certain things until they break but they catch up in the long term. A good engineer can save a few dollars by good parts management and knowing exactly when things are due but its not huge compared to the overall cost of maintaining an aircraft.
Go cheap short term pay more long term, you get what you pay for in aviation eventually.
The original thread is about a company funded aircraft, having one aircraft you are willing to subsidise with your own time to barely break even does not count.
* Forgot to add that the tax laws concerning aircraft did change a few years ago so it pays to get accountants involved who know what they are doing. The revisions particularly involved older aircraft as i understand which is why cheap twin charter aircraft became very scarce suddenly.
Last edited by 43Inches; 29th Jun 2012 at 10:17.
I have owned and operated two different aircraft under a company for over 12 years. It has been an outstanding success. Every part of flying has been a tax deduction and GST free. When I am not conducting business I am taking my currency training very seriously ... I never rent or fly privately.
Having an aircraft (the first was a 172) has given me a compeditive advantage to jobs in remote areas and this is what I have specialised in. Work has taken me all over Eastern Australia by air. It has made me give prefference to jobs away from home (flying involved) as opposed to doing jobs closer to home (damn, I would have to drive for that). I have landed in wheat stubble as well as major airports.
Has an aircraft made me any money? Well no one would rent me planes for the ops I have done and I have had the benifit of operating fully maintained aircraft with no expense spared. But money, I dunno, at the end of the financial year it is just numbers on a company return that I never read. Simply put, I don't care or even want to know. The 172 was depreciated so much that when I sold it that most of the money from it was taxed at the company rate. The current aircraft will no doubt be the same.
About 120 hours per annum has been plenty for my company to make profit, pay tax and own lovely aeroplanes.
Go for it if you can.
Having an aircraft (the first was a 172) has given me a compeditive advantage to jobs in remote areas and this is what I have specialised in. Work has taken me all over Eastern Australia by air. It has made me give prefference to jobs away from home (flying involved) as opposed to doing jobs closer to home (damn, I would have to drive for that). I have landed in wheat stubble as well as major airports.
Has an aircraft made me any money? Well no one would rent me planes for the ops I have done and I have had the benifit of operating fully maintained aircraft with no expense spared. But money, I dunno, at the end of the financial year it is just numbers on a company return that I never read. Simply put, I don't care or even want to know. The 172 was depreciated so much that when I sold it that most of the money from it was taxed at the company rate. The current aircraft will no doubt be the same.
About 120 hours per annum has been plenty for my company to make profit, pay tax and own lovely aeroplanes.
Go for it if you can.
Join Date: Nov 2007
Location: Mars
Posts: 373
Likes: 0
Received 0 Likes
on
0 Posts
43, yes insurance covers an agreed value for the hull and cover up to an agreed max for liabilities. Additionally carriers liability cover is required for paying passengers if the plane is used in charter. Whatever the percentage (I pay much less than 3% hull) one could probably insure said 172, outside of charter ops, for $4500.
On maintenance, yes, if you take a knackered old box of aluminium oxide to any LAME, it will probably bankrupt you. However, maintenance is incredibly variable in service price and quality and hence very dependent on the provider. I am not recommending 'deferred maintenance' at all but one needs to be entwined in some sort of 'relationship' with an honest, reliable LAME and careful that one is not paying for over servicing, poor quality and gouging.
Yes, as is not unusual here, there is a bit of thread drift. I was only making a case about the (off topic?) point made earlier that you need to do 300 hours per year before buying a plane becomes financially viable. It can be much less than that and you can control a much nicer plane than the average rental hack, which lets face it is pretty horrible in ths industry. Why are folks here so discouraging to those who might think buying and operating a plane is unattainable? Many dream of doing so and could actually do it without going bankrupt but are put of by the general horror stories, doom, gloom and misery in this industry. It can actually be a lot of fun!
Getting back on the topic. I have used a company. However, my accountant advises there is no advantage in doing so. If you use the company aircraft you have to pay the company rate. You have to be able to show that the aircraft is offered for rental to the general public and an arms length relationship in that activity. There is no way to get the tax man to pay for the director's fun! There is no value in pretending the company is the liable entity in any mishap where your negligence is a causal factor either. You will still lose your house, whether the aircraft is owned by a company or not.
On maintenance, yes, if you take a knackered old box of aluminium oxide to any LAME, it will probably bankrupt you. However, maintenance is incredibly variable in service price and quality and hence very dependent on the provider. I am not recommending 'deferred maintenance' at all but one needs to be entwined in some sort of 'relationship' with an honest, reliable LAME and careful that one is not paying for over servicing, poor quality and gouging.
Yes, as is not unusual here, there is a bit of thread drift. I was only making a case about the (off topic?) point made earlier that you need to do 300 hours per year before buying a plane becomes financially viable. It can be much less than that and you can control a much nicer plane than the average rental hack, which lets face it is pretty horrible in ths industry. Why are folks here so discouraging to those who might think buying and operating a plane is unattainable? Many dream of doing so and could actually do it without going bankrupt but are put of by the general horror stories, doom, gloom and misery in this industry. It can actually be a lot of fun!
Getting back on the topic. I have used a company. However, my accountant advises there is no advantage in doing so. If you use the company aircraft you have to pay the company rate. You have to be able to show that the aircraft is offered for rental to the general public and an arms length relationship in that activity. There is no way to get the tax man to pay for the director's fun! There is no value in pretending the company is the liable entity in any mishap where your negligence is a causal factor either. You will still lose your house, whether the aircraft is owned by a company or not.
Thread Starter
Insurance
Thanks very much everyone for the replies. In regards to insurance you all really need to start looking for a broker. Im not sure why you are paying $4500 on a 172? I have been quoted $4000 per annum for a B58 Charter $250K Hull. This is with the pilot requiring 10 on type, so I wouldn't exactly say it is an out there policy that only space shuttle drivers are insured on. This was through aviation insurance australia - very helpful.
I will be seeing an accountant in regards to the matter, was just interested to hear how some others are operating.
Cheers Guys!
Happy Flying
I will be seeing an accountant in regards to the matter, was just interested to hear how some others are operating.
Cheers Guys!
Happy Flying
Join Date: Jun 2011
Location: Next door to the wrong neighbours
Posts: 243
Received 0 Likes
on
0 Posts
I haven't read all the preceding replies but in response to the original question regarding whether or not an aircraft could be purchased in a SMSF you need to consider only one thing. Does the investment pass the test of do you expect it will make a profit? If the answer is no then it is unlikely the tax office, your auditor or ASIC will consider it a bona fide investment as far as a SMSF is concerned.
Last edited by truthinbeer; 2nd Jul 2012 at 04:51.
Join Date: Jul 2011
Location: Sarnia, ON
Posts: 89
Likes: 0
Received 0 Likes
on
0 Posts
I was wading through the CASA register for some reason, and while I had it open I thought I would do a search for "super" in the registration holder name field. Almost 20 results came up which were obviously owned by a SMSF.
Some people must be good at making the numbers work well enough to survive being independently audited.
Some people must be good at making the numbers work well enough to survive being independently audited.
Join Date: Jun 2008
Location: Perth
Posts: 133
Likes: 0
Received 0 Likes
on
0 Posts
IMHO, you should always keep the aircraft in a separate legal structure for liability reasons.
Sure, if there is gross negligence (forged Maintenance Release, clearly ignore A/Ds that contribute to an accident, unauthorised maintenance contributing to an accident etc.) then you could be held personally liable, but if you operate it professionally (use a professional maintenance company that you engage to track all time-lifed components/avionics checks etc.) then you should have no personal liability in the event of a bad event - at least to the value of the aircraft.
If you hire your aircraft to others, consider charging them an "exclusive access block" fee. This way you can feed more money into your otherwise loss making aircraft hire company.
If you (or another entity) loans money to the company to fund the purchase of the aircraft, ensure that entity is a secured creditor too.
At a Class D airport (such as Jandakot) for a fixed pitch, fixed undercarriage, 1970s/80s, for 100 hours a year, budget on outgoings of $9K/annum for outside storage... perhps another 8K if you want hangar, with large additional capital ($30+K) required every 10+ years (prop, paint etc.). For newer aircraft (Cirrus etc.) your outgoings will be more like $15-20K/annum plus hangarage.
You'd need a pretty sophisticated good business case to do this via a SMSF. I don't really think it would ever pay for itself.
I have owned aircraft that have done 450 hrs/year but Murphy's law of unscheduled maintenace always seems to gobble up the profit.
Sure, if there is gross negligence (forged Maintenance Release, clearly ignore A/Ds that contribute to an accident, unauthorised maintenance contributing to an accident etc.) then you could be held personally liable, but if you operate it professionally (use a professional maintenance company that you engage to track all time-lifed components/avionics checks etc.) then you should have no personal liability in the event of a bad event - at least to the value of the aircraft.
If you hire your aircraft to others, consider charging them an "exclusive access block" fee. This way you can feed more money into your otherwise loss making aircraft hire company.
If you (or another entity) loans money to the company to fund the purchase of the aircraft, ensure that entity is a secured creditor too.
At a Class D airport (such as Jandakot) for a fixed pitch, fixed undercarriage, 1970s/80s, for 100 hours a year, budget on outgoings of $9K/annum for outside storage... perhps another 8K if you want hangar, with large additional capital ($30+K) required every 10+ years (prop, paint etc.). For newer aircraft (Cirrus etc.) your outgoings will be more like $15-20K/annum plus hangarage.
You'd need a pretty sophisticated good business case to do this via a SMSF. I don't really think it would ever pay for itself.
I have owned aircraft that have done 450 hrs/year but Murphy's law of unscheduled maintenace always seems to gobble up the profit.
Join Date: Sep 2013
Location: Sunshine Coast
Posts: 5
Likes: 0
Received 0 Likes
on
0 Posts
If it ain't fixed to the ground it ain't Business Real Property. An aeroplane fixed to the ground would be pretty useless I'd say.
If it was allowable and the use was incidental and trivial you'd get away with it.
The trustee of an SMSF can not be held accountable for poor investment decisions but I wouldn't go out of my way to lose money.
Best digging a hole in the ground and pouring money into it.
Your SMSF could own the asset and lease it to another party without concern, if it was used in your business it would be classed an in-house asset and be a major pain in the back end if it represented more than 5% of your funds assets.
Do not take this as financial advice, be sure it's appropriate for your needs, bla bla bla.
If it was allowable and the use was incidental and trivial you'd get away with it.
The trustee of an SMSF can not be held accountable for poor investment decisions but I wouldn't go out of my way to lose money.
Best digging a hole in the ground and pouring money into it.
Your SMSF could own the asset and lease it to another party without concern, if it was used in your business it would be classed an in-house asset and be a major pain in the back end if it represented more than 5% of your funds assets.
Do not take this as financial advice, be sure it's appropriate for your needs, bla bla bla.
