Placing car collection into company for tax efficiency?

[JohnJL]

I am only interested in this if its completely legal, and of course I'll consult an attorney if this is possibly viable. I'm interested if others have been able to make this work...

I have a small (6 cars) but growing collection. I plan on holding on to some of them as long-term investments. I also plan on selling some from time to time.

I also spend ~600 hours/year working on/restoring the cars and a fortune on parts.

I am full-time employed in another industry, this is not my full-time venture. I am in Canada but am a US citizen with another address there as well as an Australian PR.

I am wondering if I can minimize gains taxes on the cars, deduct part of the parts expense and charge my labor on the cars in a way that reduced my overall tax liability.

Am I way off-base here?

[id10t]

Might be doable with a trust to own the cars, and a LLC or corporation to do the work, etc. on them and bill back to the trust.

[widgeon13]

You probably should be asking a Canadian accountant.

[MRM]

Taxes will be owed in the jurisdiction where the income is earned. Trying to earn income in one jurisdiction and paying a lower tax rate in another is a time-honored and generally illegal activity commonly known as transfer pricing (which can be legal) or "calving" which is slang for illegal transfers. Be careful that you don't run the risk of one country or the other getting suspicious you're doing that. With the anti-money laundering and terrorism financing laws in place, it's hard to sneak questionable money transfers through without fully declaring them.

In the US the general rule is that you can only deduct expenses on your car investment/collection (or any other outside business) to the extent that you have taxable income from that business. Here, you can't deduct car collection investment expenses against your ordinary income or your company's ordinary income, if you own a business. When you sell the cars you would claim capital gains and deduct any maintenance or expenses from the car's appreciated value anyway, so I don't see the value to deeding the cars to a corporation or trust for tax purposes.

If your company can use the cars, even for display, you can rent the cars to your company, deduct the rent from your company's income, declare it as income to your car investment business, write down the collection's expense and depreciation to the extent that the cars do generate income, and pay tax on what's left over. But then when you sell the car all the depreciation gets recaptured and you can't deduct the ongoing expenses from your capital gains, so it's probably a wash. I'm not sure it's worth going through the effort.

[BK911]

Dont most congressmen have a shell company for a tax write off?
Why couldnt you make a business (JJL restorations) to write all your stuff off?

[Porsche-O-Phile]

One of my flight students (attorney) bought a Piper Cherokee 180 and set up an LLC to handle the management of it. I imagine the same sort if thing could be done with cars (although the airplane did bring in revenue on leaseback so it was more legit arguably having a 2-way money stream...)

[stomachmonkey]

Originally Posted by JohnJL

....I am wondering if I can minimize gains taxes on the cars, deduct part of the parts expense and charge my labor on the cars in a way that reduced my overall tax liability....

So you are saying ABC Car company will own the cars.

ABC Cars has no income / does not generate revenue.

ABC Cars will pay John Doe for work.

Where is ABC Cars getting the money to pay John Doe?

Never mind the fact that John Doe now has income that he needs to report / pay taxes on.

Sounds like a complicated way to get yourself in trouble for no gain.

[JohnJL]

Originally Posted by widgeon13

You probably should be asking a Canadian accountant.

Yes, I will. I wanted to hear of there were other examples I could take to him/her.

Originally Posted by MRM

Taxes will be owed in the jurisdiction where the income is earned. Trying to earn income in one jurisdiction and paying a lower tax rate in another is a time-honored and generally illegal activity commonly known as transfer pricing (which can be legal) or "calving" which is slang for illegal transfers. Be careful that you don't run the risk of one country or the other getting suspicious you're doing that. With the anti-money laundering and terrorism financing laws in place, it's hard to sneak questionable money transfers through without fully declaring them.

In the US the general rule is that you can only deduct expenses on your car investment/collection (or any other outside business) to the extent that you have taxable income from that business. Here, you can't deduct car collection investment expenses against your ordinary income or your company's ordinary income, if you own a business. When you sell the cars you would claim capital gains and deduct any maintenance or expenses from the car's appreciated value anyway, so I don't see the value to deeding the cars to a corporation or trust for tax purposes.

If your company can use the cars, even for display, you can rent the cars to your company, deduct the rent from your company's income, declare it as income to your car investment business, write down the collection's expense and depreciation to the extent that the cars do generate income, and pay tax on what's left over. But then when you sell the car all the depreciation gets recaptured and you can't deduct the ongoing expenses from your capital gains, so it's probably a wash. I'm not sure it's worth going through the effort.

I'm assuming I'd do everything in Canada, where my main residence is and where the cars are located. I'm not trying to game any tranfer pricing. I'm a Banker, I know that one is off limits!

Originally Posted by Porsche-O-Phile

One of my flight students (attorney) bought a Piper Cherokee 180 and set up an LLC to handle the management of it. I imagine the same sort if thing could be done with cars (although the airplane did bring in revenue on leaseback so it was more legit arguably having a 2-way money stream...)

This is what I'm talking about. Something like this;

1. Establish a company in which I, or my wife or kids, are the sole or controlling owners.
2. Capitalize the company with the deeds for the 6 cars plus some cash.
3. Pay myself (or defer the payment as an Account Payable until the car is sold) for work done.
4. Buy all the parts and labor to maintain/restore the cars from that cash in the company's account.
5. At the end of the year the operating loss (in a year when I didnt sell anything but incurred parts/labor charge) or gain (when I did sell a car) gets trued-up
6. Achieve an end-result where in sum I retain more $ than the current arrangement where I pay parts out of my own pocket without any deductability or capital gains offset, etc.

Originally Posted by stomachmonkey

So you are saying ABC Car company will own the cars.

ABC Cars has no income / does not generate revenue.

ABC Cars will pay John Doe for work.

Where is ABC Cars getting the money to pay John Doe?

Never mind the fact that John Doe now has income that he needs to report / pay taxes on.

Sounds like a complicated way to get yourself in trouble for no gain.

I definately dont want trouble. Some years the company would show actual or book profits when cars are sold or of I had to periodically mark the assets to a market price. The company could pay out of an initial or recurring capital injection by its owner (me.)

[Seahawk]

I am not sure of the parallels (tax-wise) to classic cars, but I am unfortunately involved in the horse business, well, my wife and daughter are and I do all the taxes.

In the US, register your business. Use one of the four ways available to obtain an employer identification number from the Internal Revenue Service to register your antique car business on the federal level. Obtain a business license from the city or county where your business will be located, and find what out tax laws apply to your business by contacting the department of revenue at both the local and state level.

You must abide by the often strict rules governing the conduct of your business, record keeping, etc.

For us, we used to buy and sell horses and ponies, give lessons, etc.: My wife and daughter would find them, get them trained and sell, generally for profit.

Tax-wise, I was able to write off all applicable expenses associated with all of this goodness, including the stable, equipment, feed, travel to look at horses, repairs to equipment, parts, etc. (even miles to drive and get those parts). Depending on the depreciation schedule, assigned value, etc., the business never "made" money and we where able to deduct our business loses off our household income.

Same with the farm business we have.

That is a 30,000 foot overview of how it works here.

The absolute key is understanding all tax laws to the molecular level, keep spotless records (for instance, any vehicle associated with either business has a wheel book in the center console: On business, we write down the time, miles and purpose for every trip, including interim stops. It is a habit that has paid off.), receipts and log your time.

That's about it. We also protect our personal assets, which are separate from the businesses.