Things to consider when buying a company car

What name should I purchase the vehicle in?

If the car is in your personal name you can claim a tax deduction on the car expenses where the car has been used for business purposes. If the car is purchased by the company, the company should be able to claim 100% of the annual running costs, depreciation, and interest cost. However, fringe benefits tax will need to be factored in.

Should I buy new, used or certified?

Buying new means higher prices, better reliability, newer features and up to 20% depreciation once you buy. Used means lower initial cost, questionable reliability, low residual value and cheaper insurance premiums. Certified used is the best of both worlds. These are dealer-refurbished cars with low kilometres, one prior driver and reasonably high residual value.

The decisive factor here is determined by your car’s primary use and how long you intend to keep it. If your business needs a vehicle for the long-term then it makes sense to buy a vehicle with high residual value, at the top of its lifespan. If your business only uses a car occasionally, then a used car that won’t gather much wear and tear makes more sense.

Cost of car

Small businesses with turnover of less than $2m are entitled to claim 100% accelerated depreciation on the car cost providing the cost is less than $20,000 (GST inclusive). This is only available until June 2017.

Luxury car tax

If the car you purchased is more than the current luxury car limit (approx $57,500), your tax deduction and GST credit will be capped at this value. Therefore the maximum car depreciation you can ever claim on the car will be capped at $57,466 and the maximum GST credit allowed is $5,224. Therefore, there is no great tax or GST benefit in buying a car over the luxury car limit.

Fuel Economy

If you are paying for your employees fuel as well as the car, you’ll want to choose a car that is relatively economical to run.

Don’t forget, it’s always a good idea to consult a financial professional before making any purchases.

 

Get an instant $20K deduction in your tax return this year

Now is a great time to purchase a company car if you’re a small business. The government brought in some great tax benefits for small businesses a few years ago and they’re about to run out.

If you purchase a car (or any asset for that matter) that costs under $20,000, you can reduce your taxable income by that amount immediately, instead of depreciating it over time.

Previously, you were only able to depreciate 15% of the cost of a new asset in the first year (and 30% in subsequent years). This means if you purchased a car for $20,000 you could only deduct $3,000 off your taxable income in the first year. At the moment you can deduct the full $20,000.

But not for long! These incentives are set to run out in June 2017.

Of course if you do decide to purchase a new company car, we can help you finance it with low rates and great loan features.

You can read more about this on the ATO website:

https://www.business.gov.au/info/run/finance-and-accounting/accounting/depreciating-assets-for-small-business