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Minimising Tax when Starting In Business

Starting a business can be a stressful and expensive time so it pays to make sure you take advantage of all possible ways to save Income Tax and GST. One common oversight is not to claim for tools, equipment, furniture, computers, vehicles, reference books and any other assets or items owned personally and then transferred into the business upon commencement.

For many business owners these add up to many thousands, sometimes tens of thousands where vehicles are involved, so it is certainly worthwhile claiming as much as you can.

Where Income Tax is involved (although using a limited company is important in many other ways), from the point of view of maximising tax deductibility on assets introduced to the business it doesn’t matter what type of business entity you use but for GST, you can only claim GST where you are using a business entity like a company or a partnership.

Watch out though, because there are detailed rules on the GST claimable if you originally bought the assets second-hand, which means you cannot claim any GST. Furthermore, the GST you can claim is limited to 3/23 of the lesser of:

  • The purchase price you’re paying to yourself
  • Their open market value of the assets
  • The original GST included in the original cost to you when you purchase any assets originally

Just two further notes of caution. Remember that your business now owns the assets, not you, so if the business gets into difficulty it may be the last you see of them! Remember also that if you buy the assets back from the business there may be depreciation recovery or a GST liability.