CLAIMING CAR EXPENSES FOR BUSINESSES AND INDIVIDUALS
Certain tax advantages can come with cars if they are used for work or employment purposes.
For income tax and fringe benefits tax purposes:
- a “car” is any vehicle principally designed to carry less than 9 passengers and with a payload of less than 1 tonne.
- King-cab or 4 door utes are considered Cars if they have a carrying capacity of less than 1 tonne.
- If a 4 door Ute with a carrying capacity of 1 Tonne or more is purchased by the business, that’s considered to be an exempt vehicle for FBT purposes. Provided the logbook (see claiming car expenses below) shows only minor and infrequent use, home to work travel is considered to be tax deductible so the tax benefits of these utes is more accessible.
- Motorbikes are not Cars, they are exempt vehicles also so the same rules in the paragraph above apply.
- Buses with a carrying capacity of 9 passengers or more are exempt vehicles.
If a business, registered for GST, purchases a car from a motor dealer, most likely the car will have GST included in the price. The business purchasing the car can then claim back the GST subject to its business usage (see claiming car expenses below).
If a business, registered for GST, purchases a second-hand car from a private seller, GST will probably not be included in the price. The business purchasing the car can however still claim an imputed GST credit of 1/11th of the price but only if the vehicle was purchased for the purposes of sale or exchange.
If the car costs less than $30,000 excluding GST, then it may be eligible for a full depreciation write-off in the year of purchase. So a car must be purchased for no more than $29,999 plus GST (see claiming car expenses below).
TAX BENEFITS OF LEASING A CAR
Cars can be bought for cash or financed.
- If a car is purchase with a bank loan or via a Chattel Mortgage, the GST on the full purchase cost of car can be claimed in the year of purchase and the car loan can be paid off over time.
- If a car provided through an operating lease, the GST included in each lease payment may be claimed back in the businesses BAS.
TAX BENEFITS OF SELLING A CAR
If a business registered for GST sells a car, the sale price would usually include GST and sale price and GST must be included in the businesses BAS and reminted to the ATO.
If the car has been depreciated for income tax purposes in past tax return(s) of the business, and the car is sold for more than its written down value, the profit on the sale of the car is either included in the taxable income or applied against any pool of assets being depreciated in the business.
CLAIMING CAR EXPENSES / TAX BENEFITS OF BUYING A CAR FOR BUSINESS
You can claim tax back on cars if the expenses include:
- Petrol/fuel and oil;
- Repairs and maintenance (tyres, servicing etc);
- Interest on borrowed money
Receipts are needed for all of the above to claim tax deductions although the tax office does accept reasonable estimate for fuel.
Because you can’t claim private expenses, an approved logbook must be kept for a full 12 week representative period for the car ( Logbooks are generally available at Post Offices and news agencies). Every trip must be recorded for the 12-week period, including any and all private travel. This then gives a deductible percentage cost. If a business claims the full costs of running a company car, and the car is used more than occasionally for private travel, a Fringe Benefits Tax liability may arise.
If the car is used for 5,000 km or less for any financial year (1 July – 30 June), a logbook may not be necessary if you choose the standard tax office rates per km of usage.
If you are going to claim car costs as an employee, make sure that your employment contract states that you may be required to use your car for employment duties and keep a record of the travel you undertake for work.
As cars are a significant purchase and the rules can be complex, NBC are experts in this area and professional advice should be sought from us to get the best possible outcome.