How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Rakhi Vasavada Your Own Question
Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 4543
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
43581946
Type Your Finance Question Here...
Rakhi Vasavada is online now
A new question is answered every 9 seconds

My husband and l are starting an online home based business.

Customer Question

Hello, my husband and l are starting an online home based business. l am 65 years old and my husband it 63 years old. We are not on any government benefits or hand outs. Just sold a previous business and looking at semi-retirement. Our new business is due to start trading later this year.
The new business in under a Trust with my husband being the director and myself a beneficiary.We have spent over $45,000 of our own money building a very large shed/warehouse in our backyard specific to our business only. We had to get a full loan to pay for it which is nearly all paid off. This area is not for personal use. We aim to purchase a company car next year when the business grows and garage in our warehouse part of the building.
Our accountant says that we cannot claim the cost of the building because the implications of capital gains tax, etc when we sell would only complicate things. This l understand but we don't want to sell, ever. We have renovated and love living here. Therefore the additional tax'payable at the time of sale won't bother us in this life. She advised we just pay for it out of our money and leave it at that but we hear of other people that make claims so l want to get a second opinion please.
I suggested that we as individual tax payers rented out the warehouse to our business but again she said was only shifting money from one of our account into anther with no real tax benefits with it being a trust. She said that there is no way we can claim this expense on our tax. It only adds value to our property (which we don't want to sell anyway.)
She also said that because our company van was garaged on our private property we would have to pay additiona tax each year. I think she said about $2,000 FBT. The ATO when l rang them said that if the vehicle could carry over 1 tonne and was used specifically for our business that there would be no additional costs like she mentioned.
My question is; can we claim the $40,000 expense we outlaid for our warehouse in any possible way? Can we buy a business van and not pay any taxes on it because it is garaged on our private property? That's a lot of money dedicated specifically to the new business that has no claimable benefit. l have nursed all my life and accountancy was never my forte. Can you please advice. If we leased a factory elsewhere we could claim so much.
Really appreciate your feedback. Janet
Submitted: 11 months ago.
Category: Finance
Expert:  Mark Taylor replied 11 months ago.

Hi, my name is Mark. I would be happy to help you with your questions.

Expert:  Mark Taylor replied 11 months ago.

The $40,000 warehouse can be capitalized and depreciated over time. The problem is that the depreciation period for commercial property is 39.5 years. This would make the benefit a little more than a $1,000 per year. This is why your accountant did not believe that claiming this expense was worthwhile.

Expert:  Mark Taylor replied 11 months ago.

If you did sell the property at a future time (I know there are no plans to sell) you would need to recapture any depreciation that was claimed. This means that any depreciation that was accumulated would be added back to your income as ordinary income.

Expert:  Mark Taylor replied 11 months ago.

I am so sorry. I just realized that you are in Australia. Please disregard my comments are relating to US tax rules. I will opt out an let another expert help you.

Expert:  Rakhi Vasavada replied 11 months ago.

Dear Friend,

Hello and welcome. Thank you for providing an opportunity to assist you.

I have a slight disagreement with your accountant. The cost of shed that you built on your backyard is a "Capital" expense for your business. So, the shed / warehouse that you built is a capital asset and it WILL be depreciated. You CAN claim depreciation on the cost of the shed that you built over time.

It is NOT any value addition on your property and will not have any adverse capital gains tax implications == you anyway do not intend to sell your property.. So disregard this issue as of now.

However, she is correct that it will not be worthwhile to rent out the warehouse as an individual to the business. Because what you claim in your business will be taxable in your hands as individual. However, you can still do it if you want.

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards,

Customer: replied 11 months ago.
Thank you Rakhi,
Are you suggesting that perhaps the best option to recuperate moneys invested in our warehouse may be to claim the warehouse totally as a capital business expense?
• I think I am also correct in saying that this would include the business loan, running costs which include a portion of annual electricity, water, rates and gas. Fittings to the warehouse etc.
• Also because our business van will be garaged on the warehouse area of our property am I right in believing that we won't have to pay any additional fringe benefits taxes on our van annually?
However, when l mentioned this to our accountant she said that we would have to measure the floor area (which is 100sq.metres) and this portion of land that is occupied by our warehouse would then be subject to capital gains when we sell. However, as you know we don't want to sell.
This seems to be of more concern to her than us although she did say it was an option she would not recommend. We intend on selling this business, (not our warehouse but the website stock only) in about 10 years and continue living here so I thought as this is our primary residence it would exclude any capital gains costs anyway if we do unexpectedly decide to move and sell our house after that time.
As you clearly explained, we will not rent to ourselves as you have advised.
Looking forward to your reply, Thank you so much for giving us options of how we can better finance our home business.
Many thanks, Janet
Expert:  Rakhi Vasavada replied 11 months ago.

Dear Friend,

Hello and welcome. Thank you for your follow up reply.

1. Yes. That is what exactly I mean. Your total expense towards building your warehouse will be your "capital" investment and that will be depreciated towards its useful life.

2. All the operational costs, i.e. annual electricity, water, gas, etc. would be treated as revenue expenditure and would be expensed in the Profit and Loss Account and claimed entirely as business expenses.

3. Yes, I do not think merely parking the Van at your place will attract FBT. Having said this, this being your primary residence anyway, this would exclude capital gains tax anyway even if you intend to sell it in worst case scenario.

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards,