Your business has reached a stage where it can sustain its own car purchase.
That’s exciting!
This milestone might be a great way for you to increase your revenue and set you up for the future.
But should you really purchase your vehicle through your business?
In this blog, we’ll shed some clarity on what buying a car through your business means in terms of tax deductions instead of buying it privately.
And we’ll also highlight the three methods you can use to claim tax deductions for your business vehicle.
Business-Owned Car
There is no right or wrong answer to the question of whether you should purchase your new vehicle under your name or through your business. However, if you’re planning to use your vehicle for work-related trips, it makes sense financially to buy it through your company.
As a small business owner, you’ll be entitled to claiming a small business tax write off for expenses related to the business use of your motor vehicle.
Some of the expenses you can claim include:
- Fuel
- Repairs
- Registration
- Insurance
- Depreciation
- Servicing
- Lease payments
Also, you might be able to claim GST back on the purchase price of your vehicle.
You’ll find more information about deductions on the ATO website.
If you use your vehicle for both private and business use, you’ll have to keep an accurate record of use and justify the percentage you are claiming as work-related. And there will be a Fringe Tax Benefits implication meaning you’ll be subject to taxation on the private use of the car.
Note that travel to and from work is considered private use.
Privately-Owned Car
If you’re using your car for both private and business use, it might be better to purchase the car in your name and claim tax deductions related to your work-trip expenses.
As mentioned before, you’ll need to keep track of your business use and be able to justify the percentage you’ve used for business trips.
Make sure to discuss this option with an accountant to find out the best option based on your situation.
How To Claim Business Vehicle Expenses?
There are three methods to claim business-related vehicle expenses in Australia:
Cents Per Kilometre Method
This method is pretty straightforward. All you’ll need to do is multiply the number of kilometres you’ve driven for business purposes by the set rate provided by the ATO. This rate is 72 cents for the 2021-2022 financial year. With this method, you can only claim up to 5,000 km a year.
Logbook Method
The logbook method requires you to record every trip you’re making for business reasons and the purpose for each of them. You’ll find more information on what to record in your logbook here.
Here are the steps you need to follow to find out what the percentage of business use is:
- Calculate the total kilometres travelled over the year (using your logbook)
- Divide the distance travelled for business by the total distance travelled
- Multiply the result by 100
Next, you’ll need to find out how much you can claim. Add up all of your car-related expenses for the financial year and multiply the result by the business-use percentage.
Actual Costs Method
This method involves keeping a record of all the receipts for car-related expenses and calculating the actual costs based on the business-use percentage. With this method, you can also claim depreciation of the vehicle. You’ll find more information here.
We hope that this article will help you make the best decision for your business. At upcover, we’re passionate about helping small businesses like you grow and succeed. That’s why we created a free instant quote generator where you can get an estimate on market-leading insurance tailored to your needs in seconds. This way, you can spend more time building your business and less time on admin-related tasks! Simply enter your occupation and expected revenue to get started.
.svg){kind=logo}
.svg)
.svg)
%201.svg){kind=icon}
.svg)
.svg)
.webp)
.webp)
.svg){kind=icon}
.svg)
