Tax Tip – Should I buy a car in the business?

We get asked this question a lot and depending on your situation the tax savings or benefits will differ for each business. Here are some things to consider if buying a car in your trust or company:

What is the likely business usage?

If you plan to use the car predominately for work/business purposes, then it can often make sense for the business to buy it. However, if you expect to use it largely for school runs and shopping trips then it generally makes sense to leave it out of the business.

What are the Fringe Benefits tax and GST implications?

If the car is acquired by the business, the business can claim the GST credit on the price of the car, limited to the luxury car tax (LCT) depreciation limit. So, before you rush out and buy yourself a Porsche, be aware that the ATO limits the GST credit you can claim to $5,235, being 1/11 of 2017/18 LCT limit of $57,571.

The business will also be liable for fringe benefits tax (FBT) to the extent the car is available for private use by either you or your employees. The best way to minimise you FBT is to keep a log book for a consecutive 12-week period. Be aware that the ATO does not generally consider travel between home and work to be business travel, even if you stop to pick up mail on the way.

What happens when I sell the car?

When you sell the car remember that as with the purchase, the sale prices include GST. If you sell the car for $22,000, then $2,000, being 1/11 needs to be remitted on the next BAS. If it happens to be a luxury car, then despite the GST on the purchase being capped to 1/11 of the LCT limit, when you sell you will be liable for GST on the market value of the car on sale and not the luxury car cap. What next? Before you buy a car in your business it is important to consult your accountant. We are happy to assist with running some figures for you to determine the potential costs and whether there is any tax benefit associated with buying the car in the business.