Moving on in our series of most commonly asked questions. This one is a doozy as lots of people with no tax training like to provide tax advice around what you can claim for motor vehicles, salespeople anyone!? OK, so here is the downlow from taxation professionals qualified to give you this advice.
It depends on what structure you have, which we have broken down below, so find the part that is relevant to you and read on ...
Individuals or Partnerships
If you are an individual or an individual partner in a partnership you have a couple of methods to choose from:
Cents per km method up to a maximum of 5,000 business km's per year. This can be unsubstantiated but you must be able to show how you worked it out. This must also be for business use purposes and does not include private use (home to work, work to home). The rate for the 2024 year is 85 cents per km. It was 78 cents per km for 2023.
Logbook method You can claim the business use % of car expenses based upon a logbook that you have maintained over a continuous 12 week period which can be used for a 5 year period (if it is representative of your travel throughout the year)
Common types of motor vehicle expenses include:
Fuel & Oil
Repairs & Servicing
Interest on Motor Vehicle Loan
Lease payments
Insurance
Registration
Depreciation (decline in value)
So how long do I need to keep these records on file for? The ATO recommends 5 years!
Word of warning, we only recommend this method if you are organised enough to collate the above information - estimates are not good enough.
Companies and Trusts
If you operate through a company or trust structure you can only claim the actual costs for motor vehicle expenses *refer common types of motor vehicles expenses included above* that are part of the everyday running of your business. Actual costs are based upon receipts for expenses incurred.
If you provide a motor vehicle to employees, in a company structure, that has any private use and is not considered an FBT exempt motor vehicle then you need to consider the fringe benefits tax (FBT) consequences. FBT is another topic in itself, trust us, so make contact with us to discuss if you think this may apply to you or you take or you can take a read of our blog on this one.
If your employee uses their own vehicle for business related purposes and you pay them a motor vehicle allowance or reimburse them for their costs, your business can claim a deduction for the allowance or expenses reimbursed (but not depreciation).
IMPORTANT
If a motor vehicle is provided to a shareholder of the company or their associate to use in their capacity as an employee this may be treated as a loan (Division 7A) or dividend so once again important to make contact with us so we can discuss treatment and tax consequences.
All I want to know is 'Can I claim the motor vehicle purchase as a deduction?' because that's what the motor vehicle salesman told me I could do!
Well yes, there is an 'Instant Asset Write Off' that may be available to utilise in the 30 June 2024 and 2025 years. In order to be eligible your business must have an aggregated turnover of <$10 million.
For eligible biz, you will be able to immediately deduct $20,000 on a per asset basis BUT it is for the BUSINESS portion of the cost of the asset. Did you note the highlight of BUSINESS USE. If there is any private use you cannot claim that portion.
Assets valued at $20,000 or more are placed on the asset register and depreciated over their effective lives, which is 25% diminishing value or 12.5% straight line basis for cars.
One other really important matter to note is the pesky car cost limit. What is such a thing I hear you say? Yep, there's an upper limit on the cost you can claim for the business use of your car which is $69,674 for the 2024 and 2025 years. Boo! insert tears and wailing ... yes we know and feel your pain but them's the rules (ps. this also caps the amount of GST you can claim on the purchase)
And the final common question we get asked, is whether you should purchase outright, lease or take up debt through hire purchase (HP)/chattel mortgage (CM)/loan? And look, this is partly a cash flow question and varies wildly dependent upon your circumstances ... but what we can do for you is list out the accounting and tax consequences for each to set the scene:
Ownership | Tax Deduction available* | Balance Sheet | GST* | |
Purchase Outright | Yes | Depreciation Expense | Asset | Claim ITC on purchase |
HP/CM/Loan | Yes | Depreciation Expense & Interest paid on loan | Asset & Liability | Claim ITC on purchase |
Lease | No | Lease Payments | No impact | Claim ITC on lease payments |
*Limited up to business use % and Car Cost Limit (CCL)
**Input tax credit (ITC)
So as you can see it's not quite as simple as saying I use my car for biz so please claim the maximum.
And just remember, we are here to help, so feel free to reach out anytime if you have any questions.
Disclaimer: The information provided is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice
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