Buying a Car Through Your Business? Here’s What You Need to Know!

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Buying a car through your business in Australia may be a smart financial move, especially if you use the vehicle for business purposes. It can offer several advantages, including tax benefits and financial flexibility. However, there are specific rules and considerations you should be aware of when purchasing a car for your business in Australia. 

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Here’s what you need to know: 

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Buying a vehicle under your name or through the business

If you primarily use the car for business purposes, you may be eligible for tax deductions. In Australia, you can typically claim deductions for expenses related to the business use of your car, including fuel, maintenance, insurance, and depreciation. The amount you can claim depends on the percentage of business use.

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By purchasing a vehicle through your business, you can typically deduct depreciation, effectively reducing your taxable income. Depending on your business structure, you can purchase a vehicle personally and still claim a deduction for the business-use portion, the difference is it will go through your individual tax return rather than reduce the business’s tax liability. 

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Understanding how to claim expenses for the vehicle

Determining how to claim the percentage of car expenses used for business purposes may involve the logbook or the cents per kilometre method or utilising actual receipts.

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Car Expenses

If you use a vehicle for both business and personal purposes, it is essential to accurately identify and substantiate the percentage attributed to business use when claiming expenses. Costs incurred for personal use are not eligible for deduction, a common source of errors in this area.

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Typical motor vehicle expenses that can be claimed include:

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• Fuel or electricity;
• Repairs and maintenance;
• Interest on the vehicle loan (if any);
• Depreciation (more on this below);
• Lease payments;
• Insurance;
• Registration.

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Depreciation of a motor vehicle

If you calculate your expense deductions using the logbook method or actual costs, you can usually claim depreciation, which spreads the capital costs (like the vehicle's purchase price) over time. This is commonly referred to as depreciation.

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For sole traders or partnerships, specific rules govern how depreciation can be claimed:

• If you use the cents per kilometre method, you cannot separately claim depreciation, as it's already factored into the calculation.
• If you utilise the logbook method, depreciation can only be claimed for the business portion of the vehicle's cost.

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Ensure you keep records

Regardless of the method you employ, it's imperative to maintain comprehensive records, including loan or lease agreements, tax invoices, documentation outlining your claim calculations and vehicle registration documents.

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Goods and Services Tax (GST)

When buying a car for your business, you will usually be required to pay GST on the purchase price. However, if you are registered for GST and use the car for business purposes, you may be able to claim back the GST as a credit on your Business Activity Statement (BAS).

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Fringe Benefits Tax (FBT)

If you provide the car to employees or use it for personal purposes, you may be liable for FBT. This tax is applicable if the car is considered a fringe benefit, and it can impact your overall tax liability.

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Finance Options

There may be various ways to finance the purchase of a car for your business, such as paying cash, taking out a business loan, or leasing. Each option has its own tax implications and cash flow considerations.

Here is a link for more information on whether buying or leasing your business assets and which might be the best option for you.

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Insurance considerations

It is a good idea to strongly consider commercial vehicle insurance for the car, especially if it is primarily used for business purposes. This insurance typically covers business-related risks and liabilities.

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Bonerath & Co. can assist in your commercial vehicle purchase

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Working with trusted and experienced accountants and business advisers may greatly benefit your position when looking to buy a car through your business. Let our team help you assess your business needs, financial situation and tax obligations to assist you in making an informed decision. 

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Contact the team, today!

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