We have compiled the answers to the most commonly asked questions we have had about cars, expenses and tax deductions.
Who should own the car? Me or my business?
This decision will largely depend on what percentage of your car’s use is for business and what is personal.
If the car will be used exclusively for business then it makes sense for the business to buy the car.
However, if you expect to use the car is to be used largely for personal use it generally will cost more due to the fringe benefits tax obligations & the limitations of the car limits.
What counts as business use?
If the car is used personally you will need to keep a logbook for 12 weeks.
In the logbook you record the trip date, trip beginning and ending speedo, kilometers travelled and the purpose of the trip. The logbook is then used to calculate the proportion of business use as a percentage or the total kilometres travelled over the 12 week period.
This is the percentage you can claim on all car related expenses including gst paid for the car, and car-related expenses like maintenance, petrol, servicing, insurance, registration, depreciation and financing.
A car is taken to be available for the private use of an employee on any day they or their associates use it, or are allowed to use it, for private purposes.
If a car is garaged at or near the employee’s home, even if only for security reasons, it is taken to be available for their private use regardless of whether or not they have permission to use the car privately.
The tax office generally does NOT consider kilometers driven between work and home as “business” travel. Even if you stop off to pick up the mail on the way, or have to take multiple trips each day, travel between home and work is still considered private use.
There are exceptions. For example, if your home is your primary workplace and you need to travel to another workplace this would be classified as business use.
Can I buy a Ferrari? Or is there a limit to the cost of car I can buy?
Yes you can buy a Ferrari (assuming you need it for business), however the ATO has a car limit of $57,581 in 2019/20 (ie $52,346 ex gst).
|Financial Year||GST $ value||Ex GST $ value|
If the car you purchased is more than the current luxury car limit of $57,581 2019/20) your tax deduction and GST credit will be capped at this value.
The maximum value you can use for calculating your claim is the car limit (irrespective of any amount you were paid for a trade-in) in the year in which you first used or leased the car.
Can I claim the instant asset write-off $150,000 for the car?
Yes, but it can only be up to the car limit set by the tax office of $57,581 (ie $52,346 excluding gst)
Therefore, the maximum tax deduction you can claim on the car will be capped at $57,466 and the maximum GST credit allowed is $5,224.
There is no great tax or GST benefit in buying a car over the luxury car limit, except for the joy of driving!
If the business owns the car can the business claim GST?
Yes. If the car is used exclusively for business you can claim a GST credit on the price of the car, assuming you have a tax invoice. You can also claim a GST credit on lease payments and any costs associate with running the car.
If the car also has some personal use then will only be able to claim the business-use percentage of the GST paid for the car and car-related expenses.
With a few exceptions, you will only be able to claim a GST credit up to one eleventh of this limit.
Additionally, when you sell the car, you will be liable for the GST on the market value of the car on sale and not the luxury car cap.
Car purchased for $80,000
GST credit on purchase capped at $5,235 (1/11th of $57,581)
Car sold for $70,000
GST payable $6,364 (1/11th of $70,000) this is not capped
Will the business have to pay Fringe Benefits Tax (FBT) on the car?
The business will be liable for FBT on the personal-use percentage of the value of the car and car-related expenses. If you want to avoid FBT you can reimburse the business for this portion of the car’s expenses.
If the car is owned by the company, FBT will be calculated on the car cost and not on the luxury car limit. Therefore, if you purchased a Ferrari for $200,000, the FBT will be calculated on this value for both the ‘statutory formulae’ and ‘operating cost’ methods, despite the fact that you can only claim $57,466 depreciation on the car.
If I’ve got sign writing on the car can I write off the costs for my personal use?
Unfortunately, no. If you put business advertising on your motor vehicle, the actual cost of the signwriting is tax deductible. However, to claim a deduction for the motor vehicle running costs all the normal rules apply.
2019/20 CLIENT EXAMPLE
Business Use 10%
Purchase car = $70,000 (incl gst) Maximum car value = $57,581
Sale of car = $33,000 (incl gst) Maxiumum GST value $5,235
On purchase : Max value $57,581 x 10% business use = $5,758 Tax deduction
GST on purchase: Max Value $5,235 x 10% business use = $523.50 GST credit
Every year – personal reimbursement to avoid FBT = $12,500 Income to business
On Sale – even if to yourself: $33,000 x 10% business use = $3,300 Income to business
GST on sale: $3,000 x 10% business use = $300 GST payable
Example only – please contact us to review your personal situation
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This information is intended to provide general information only and has been prepared without taking into account any particular person’s objectives, financial situation or needs. Before acting on such information, you should consider the appropriateness of the information