Purchasing and operating an aircraft under a company
 

Hi Everyone,
A question the the aircraft owners and tax specialists out there. What are the advantages/implications and disadvantages of purchasing and operating an aircraft under a company structure.
What is able to be written off etc?
Pm me if you wish.
All help appreciated.
Kind Regards,
Dash:ok:

I think its the old story, if you want to make a small fortune out of aviation, start with a big fortune.:ok:

I haven't got an answer, but I can supply an alternate question.
Has anyone purchased and operated an aeroplane under a self managed super fund?
If the aeroplane is purchased and put on-line at a flying school - is that sufficiently arms-length to keep the auditors happy? Are 100% of the costs able to be applied against the SMSF? (Assuming that the owner rents the aeroplane at full cost whenever they take it flying and on paper it can be made to be nominally profitable.)

I'm just annoyed at the finance industry gouging profits out of super whilst generating negative returns. If I am going to have money stolen from my super fund, I'd rather waste it on aviation than line the pockets of some pimple faced git with a commerce degree.

Love the way you think, I reckon Iv'e been doing that all my life.:}

Legislation with respect to SMSFs changes almost weekly, I suspect you would be testing that legislation every step of the way.

"Write off" - You can't "write off" anything that may have tax implications.

I assume you mean offset expenses (including depreciation) against profits, if there are any? You would have the same legitimate expenses including depreciation, whether a company or an individual. I would have thought it preferable to operate as an individual, then at least you can offset the inevitable losses against your other income.

There are no tax specialists here. You should seek professional advice.

Oh come now, Tailwheel - you and I both know that pilots are financial geniuses! :D

:ok: :}

How many pilots have I heard over the past fifty years tell me they want to buy an aircraft to reduce their travel costs, build hours etc. I've heard all the usual dreamer stories.

In fifty years I am yet to find one financial advantage of aircraft ownership, and I've owned six aircraft, five yachts and four sports cars (including my present E Type Jaguar), the rest of my money I spent foolishly!

If it flies, floats or fornicates, rent, don't buy! :ok:

Aircraft ownership is only for those who can afford the luxury.

I'm yet to find any aircraft that benefits from "TLC"! If an aircraft is "not going anywhere" the only thing that aircraft benefits from is never ending buckets of cold, hard cash! There is probably no change out of at least a hundred grand to restore a "dead" C180, C182 or C185 and timex engine and prop!

Before anyone even thinks about acquiring and operating an aircraft, ask Skywagon1915, Chimbu Chuck, FTDK, Jaba etc what are the real costs of owning, operating and properly maintaining an aircraft.

Why invest in aircraft when I have an iconic bridge for sale, with excellent Sydney Harbour views, very cheap this week! :ok:

Penniless dreamers and aircraft don't mix.

That depends on how much you fly it. The average 50 hour private pilot? No. Flying 200 hours a year? Good chance you come out ahead versus renting.

I don't know, I'm doing quite well thank you, but then again I don't own an aircraft!;)

:confused:

I think there would be many companys/individuals out there that would disagree.




.

Owning it in a company will have GST & FBT issues. You can choose to depreciate the aircraft - or not. If you depreciate it, then you're likely to have CGT issues on sale. The company will almost certainly run at a loss. If there is some offsetting income you can put in the company it might work to advantage. Otherwise you'll end up with a tax loss you can't use. The decision about company or not will be determined by your tax circumstances. The company (in rough terms) will be $1k to set up and $1k pa to maintain.

In my opinion if you're going to fly IFR (especially single pilot IFR) you need to either own the aircraft it or know it intimately (ie fly a mates aeroplane). Single pilot IFR trips in rented aircraft is a mugs game. More so if its travelling for business.

Also remember that if you're going to fly the aircraft yourself privately then you either need to charge yourself a market rate (with GST) or risk being required to pay FBT as a fringe benefit to an owner.

So by the time you've paid market rate and GST then if you're only looking for a way to save tax then you're not easily going to escape from that. What you will do is limit your personal liability if someone else crashes your aircraft and wants to sue.

Alternatively, register for GST in your own name (and ABN) and operate the aircraft through that. All the losses that Akro correctly predicts can then be offset against your own tax return instead of being locked up in a company and difficult to access.

UTR

Only if your income is derived from something you have a real use for the aircraft for. You cannot have expenses in one field of work and offset against another.

In FY2011 when we were developing OzRunways and test flying it in my own aircraft; I had no income from that business, so I could not offset against income from my other business. This year I will be able to. (And of course the 2011 expenses will have accrued.)

You could put it in if you do your own taxes, but good luck if you get audited!

You couldn't find someone to invoice $10?

Concurring with Clinton and the disclaimers, may I suggest you investigate your self run superannuation entity, (if you can manage one in the legal sense), buying an aircraft for your business use. I know this can be done, but I'm unsure how the sums worked out. Probably poorly, but if you make a loss, it is your own superannuation loss, not the company. Fund managers do this on a daily basis and I'm yet to see one go to Accountants pergatory.

As mentioned earlier, don't contemplate anything unless you can guarantee 200/300 hours pa. or the only option is a car drive in the GAFA to do your trade.

Oh! and don't forget about # 206. There may be implications for the unwary.

Hallelujah! A pilot that knows the difference between profit and loss! :ok:

Frank, I suspect that may be fraught with danger? I'm no Super guru but I suspect that like a trust, a self managed super fund can not trade at a loss and must achieve financial surpluses (profits). The last time I looked at a self managed fund, they weren't economically viable with equity less than around $400K.

Dash 8 Capt, I am no expert on tax, and based on my net worth, also pretty useless at high finance.
However, I probably qualify as an 'expert' (if there is such a thing) on the pitfalls of operating both aircraft and boats. Unless you are a Richard Branson and have figured out a way to get 2000 hours a year of revenue flying out of your airframe, there is no future in owning the thing. AND don't even think about propping up your investment by putting it on line with a flying school or charter company, because they never achieve the high utilisation that they promise (unless 'high' can be considered to be 100 hours a year).
With boats, there was a time when you could buy one and put it into charter under management of an agency, which of course took out commission, management, cleaning and maintenance fees before occasionally handing you some small change to make you feel good about your wise investment. The theory was that there would be sufficient demand that you would make a small loss but end up owning it in five years on the tax write-offs. In practice there were never enough punters, or too many competing boats, so the losses were large. The ATO got royally p!ssed off with buying boats for people, so brought in rules requiring any wannabe Aristotle Onassis to prove his shipping venture to be viable. The result was - and still is - plenty of cheap, slightly damaged, ex-charter boats on the market.
A different situation MAY apply if your company had a genuine need of air transportation and you could prove to the ATO that this could not be adequately served by airlines. e.g. carting specialised equipment to remote sites.
Tailwheel's advice re items that float, fly or fornicate is sound.

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. You will need to decide if you want to operate the company as a business for profit or to subsidize your personal flying, should that be your intent.

The write-offs in aircraft ownership are jackdaw: depreciation, fuel, maintenance, hangar space, insurance...etc. I have never owned an aeroplane however I have been tempted and then the rational part of my brain corrected that momentary loss of sanity. Have a look at a simple costing issue in aircraft ownership: insurance. This is a fixed cost. Let's say your annual insurnce is $4,000. If you fly 1000 hrs/year, the insurance component of operation is $4/hour. If the aeroplane flies 100 hrs/year, insurance is $40/per hour. If you generate your costings assuming 500 hrs per year and then it only flies 200 hours, how screwed are your costings going to be? Now add in the considerations or hangar costs, engine overhaul (which you charge yourself for now but must pay in the future), props, tires..and then you can see why owning an aeroplane is only for the rich or a well disciplined business owner who has a market for the asset.

Regarding a SMSF, the trust cannot purchase an asset from which you, the beneficiary (or a relative), can derive enjoyment. This means that you cannot buy a house with your SMSF and then move in. It also means that if you buy an aeroplane with a SMSF you (or a relative ) can never, ever fly it.

If you derive any use of an asset purchased by a SMSF, you risk losing the taxation status of the fund and also be subject to criminal charges (fraud). My fund owns some artwork which is on loan to a gallery and also some Gold, which is in a deposit box in a bank; to have either of these assets stored in my home could be deemed by the ATO as being for my personal enjoyment.

A SMSF exists to make a profit and I cannot see how aircraft ownership through a fund can attain this objective. One way could be to purchace a collectable aircraft (Spitfire?) and then store it away, hoping that it will appreciate in value. In principle, you could do the same with any collectable (as an asset class): vintage cars, antiques, artwork(!) all would have to be considered as a higher risk investment but ok if a) you know what you're doing and b) you mitigate the risk with more stable investments.

SMSF require that profit is maximised and a totally ruthless, unemotional approach must be taken in its managment. In the current climate, anything that returns better than 6% should be considered otherwise leave it as cash. Your fund can buy and sell old wine barrels as long as you think you can make a profit! Unless you know a way to get a 6% return on an aeroplane (that you wont be allowed to fly), don't even think about it :eek:

PS
 

I just had a closer read of Frank Arouet's post re use of aeroplane owned by SMSF and then used for business purposes: this could be allowable. The use of a business premises owned by a SMSF can be used to conduct another business where the owner of the business is the beneficiary of the SMSF. This being the case the use of an aeroplane in a similar fashion might be ok..I'd get a ruling from the ATO first, if that were contemplated.