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Chattel Mortgage: Tax Benefits When Buying A Car For Business Use

For those who are self-employed or who own businesses, purchasing a car isn’t just about getting someone from Point A to Point B, it’s about tax benefits! Unlike the rest of the population, those who use cars for business have the added advantage of being able to claim expenses to offset their tax bill.
You should always seek your Acountant’s advice on your unique situation, but as a rule of thumb: whatever the percentage of business use you use the car for, you can claim that same percentage of the vehicle expenses you incur.
Here are some of the major benefits:

1.Finance Repayments

If you get a car chattel mortgage, and your Accountant has verified you use the vehicle for 70% business use, you should be able to claim 70% of your monthly repayments as a deductible expense.

2. Running Costs

Costs for fuel, servicing, insurance and roadside assist may all qualify as a business expense on the vehicle.

3. GST Credits

If you’re registered for Goods & Services Tax (GST), then you may be entitled to a GST Credit. Because the car is considered a “capital purchase” (that’s an asset to your business), the entire GST amount on your tax invoice could be claimable.
If you don’t use the car completely for business use, that’s okay. You can still get GST credits, but it will be adjusted accordingly, based on how much you use the car for business versus personal.
If you’re like most of us and need finance for the car, you may be able to claim the GST Credit for each repayment made, as opposed to all of it upfront.
But to make sure you only claim what you’re allowed, you should get your accountant to review your situation.

4. Depreciation

Depending on the finance structure your new “capital purchase” (your car) may be eligible to be “depreciated”. Depreciation is essentially the reduction of an asset’s value, over a particular period of time, as a result of the wear and tear it incurs. The one day, the car will no longer have any value, from a depreciation standpoint. So for many businesses, that’s a good time to get another car!
But it’s important to note that depreciation has a maximum purchase price, as well as a capped amount of GST which can be credited. There are also certain car types and uses which have restrictions on how much you can claim per year, if anything.
So whether self-employed or a business owner, you will definitely want to get an experienced accountant involved when claiming depreciation because it’s a little bit tricky.

Other considerations

In addition to those more complicated tax benefits above, other tax considerations for sole traders, self-employed, and companies are claiming:

– Interest accrued on the car loan
– Insurance premiums
– Membership fees, such as road-side assist
– Maintenance costs, such as routine servicing
– Cost of damage repairs
– Petrol costs
– Kilometres travelled (the use of a log book is usually required for this)
– Lease payments (for those leasing a car)

You may be liable to pay Fringe Benefits Tax (FBT) on the vehicle’s personal usage, depending on your situation, make sure you get advice from your Accountant on this. Keep in mind, not every expense related to a car, nor every type of vehicle out there, qualifies for tax deductions.

What next?

Whilst the topic of claiming tax benefits truly lies between you and your Accountant, the team at Auto Car Loans can help you understand what loans are available for your business. Just give one of our knowledgeable team members a call on 1300 301 051 or via email at [email protected].

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