tax and vat

[noviasa]

When buying a plane is SA you can make the registration as a private person or in a company.

1 What are the tax implication on registration it in a company lets call it bushbaby SA?

2 Can you get the VAT back? 3

3 Are you allowed to write it off against the brute profit?

4 Are you allowed to have the maintenance cost deducted from the profit? If so on what conditions?

Thanx!

[KFA]

You get the VAT back at customs

[noviasa]

You get the VAT back at customs

That is if you export the plane but I am intending to keep it in SA and I have learned from this board that people do the registration of the plane in a company in SA sometimes what I want is to know the implications of doing so. I think this is also of interest of other people wanting to buy a plane.

An other question I wish to add, is it possible to have a plane registrated as a private individual if you are not a permanent resident of SA?

[Thatchman]

As long as you can show that the plane is used for business purposes, you can claim the VAT and maintenance costs as a taxable deduction.

The problem is that legally if you then also use it for private purposes you should pay perks tax on the fringe benefit if it is declared. You will also have to charge VAT when one day you sell it and pay the VAT over to SARS.

[noviasa]

Thachman, thanks for the reply, Does Sars have to proof that you use it privately or do you have to proof that you do not use it privately or is there no ruling yet?

As long as you can show that the plane is used for business purposes, you can claim the VAT and maintenance costs as a taxable deduction.

The problem is that legally if you then also use it for private purposes you should pay perks tax on the fringe benefit if it is declared. You will also have to charge VAT when one day you sell it and pay the VAT over to SARS.

[Gyronaut]

um.. mebe I should just shh but...

Without wanting to open a can of worms or waking any beady eyed tax collectors, here's how we do it.

I presented our auditors with Service Level Agreements we have with clients (which include a government department) which calls for a 4 hour response in certain remote areas. The machine is on standby in the event of critical system failures when technicians or spares might have to be deployed. This means it must be in a flight ready condition requiring regular proving flights and that the pilot (me) must remain current so regular flights are normal. Our Auditors cleared it with SARS and it was ok'd. We claimed the VAT on the purchase back, the machine depreciates like any other asset and all costs against it are written off. It is not being operated for remuneration and therefore non-type certified is legal. It is transponder equipped so we can go into controlled airspace and should the need arise we will use it as a rapid response vehicle. As my auditor put it, from an accounting point of view treat it as if it were a JCB if you were in earthmoving. Equipment required for the generation and maintenance of the business.

It turns out that it has great marketing value as a bonus in that some of our clients have requested "inspections" and flights and they tell me that it gives them peace of mind to know that we have a STOL aircraft to bail them out if they do end up in the dwang.

Rgds

[RV4ker (RIP)]

When buying a plane is SA you can make the registration as a private person or in a company.

1 What are the tax implication on registration it in a company lets call it bushbaby SA?

Don't follow. If you VAT reg'd then you claim and pay VAT. If not you don't. If you have other income then can dedut expenses, if not it will run up assessed loss...

2 Can you get the VAT back?

YES, but they can contest it (And have done so successfully in past)

3 Are you allowed to write it off against the brute profit?

Yes, providing you can justify it's use. Basically if used in the production of income it OK.

4 Are you allowed to have the maintenance cost deducted from the profit? If so on what conditions?

No conditions. Just make sure there is sufficient income to cover it. The SARS boys are now highly qualified and as long as you have a business basis and the aerie is adding to your bottom line it get's treated just like any other business asset...

Thanx! [/quote]

Bottom line. If you would be able to justify the use to a business partner/financial manager of you organisation then SARS would normally accept it.
FYI
I run a small aerie as a company car. When confronted the following analogy was accepted by SARS...
If I have to go Jhb to Postmasburg for eg....
Fly Jhb KBY - R2500 if you lucky.
Hire Avis car say R750 once all BS settled
Overnight accomodation say R500
Cost of time????
Total genuine business expense R3750 min...

Now I fly the plane there...
R550/hr and it a 2hr flight... Thus cost R2'200 return and I can do the trip in a single day vs 2 days with airlines due to ltd flights....

The other alternative is to register the aerie in a separate company and then invoicing the use at a fee out to the "users". Ie when it is a business trip you invoice your company (same way as you would buy airline ticket/avis car) and when private you invoice yourself.... Just beware that use needs to be high to benefit from op costs, but if it approaching 100hrs a year it get's pretty close to break even at reasonable rate per hr. If there is big maintenance to be done it will make a loss which is when owning in mainline company makes more tax sense.....

Welcome to contact me offline if you want more info on how to structure it, but you accountant would be best bet as he has intimate knowledge of SARS and your circumstances...

PS
If you are still paying tax after deducting aerie expenses it help a whole heap.....

[skybound®]

An other question I wish to add, is it possible to have a plane registrated as a private individual if you are not a permanent resident of SA?

Nope, or with great difficulty.

Also on the tax side - if claiming as individual you need to look out for ring fencing. If not in the ring fenced brackets, then also have to consider their newish ruling about having to make profit every so many years. (Hasn't been tested yet as far as I know and not sure how they will apply this rule).

End of the day - tax is cashflow - that is delaying how quickly he can get his hands on it. No matter how you slice and dice it - the receiver will always eventually get his bucks.

[Pine]

1. It depends - do you allready have a company or do you want to register one only for the plane.
2. Yes, You can get the Vat back.
3. Yes you are alloud to write it off. It could even help you to generate a loss. This means if the plain cost R500 000 you can write R100 000 of your profit for 5 years. if its in a company you safe R29000 in tax per year.
4. All the maintanace cost, fuel, insurance and interest can be deducted from your profit.

[RV4ker (RIP)]

Used to be 25% (ie 4 years) on the depreciation?)

[Pine]

That is your choice. Its like car, 4 or 5 years. I would make it 5 years since it doesnt loose value that quick. If you sell it after 4 years the selling price is income and taxable.

[RV4ker (RIP)]

Pine
No choice mate. For tax purposes -
Cars 5 years
Planes 4 years...

[slysi]

1. It depends - do you allready have a company or do you want to register one only for the plane.
2. Yes, You can get the Vat back.
3. Yes you are alloud to write it off. It could even help you to generate a loss. This means if the plain cost R500 000 you can write R100 000 of your profit for 5 years. if its in a company you safe R29000 in tax per year.
4. All the maintanace cost, fuel, insurance and interest can be deducted from your profit.

Just remember the point made by Mr. 4ker though, you need to show that you are in fact running a "business" i.e. generating income with the aerie otherwise no expenses can be deducted. The principle of deductions can only be made in the production of income is still valid and the guys/gals at SARS are no slouches in identifying shortcuts in this regard.

And remember one thing about that, you need to convince SARS that you should be registered before you can claim any VAT back. And when you sell the aerie you will have to pay VAT on the consideration you/or the company receives.

Don;t take any shortcuts, these boytjies are bright.

Cheers

[slysi]

Pine
No choice mate. For tax purposes -
Cars 5 years
Planes 4 years...

Agreed the write off periods used for tax are defined section 14 of the income tax act. It is a specific section that governs the deductions for aircraft.

[johnsa]

Hello RV,

What are your really paying per hour including depreciation.

What airplane you use to commuter?

Regards

John