If you run your own business, you may be thinking about a vehicle upgrade this year. Here are some things to consider before you head out to test-drive that new dual-cab ute or sleek European SUV.
Should you buy the car in the business name or your own?
If your small business buys a vehicle for less than $30,000, you could claim an asset write-off in the year of purchase under the accelerated depreciation measures.
‘It’s a common misconception to think you can just write-off the first $30,000. The full purchase price must be less than this threshold, even if you only want to claim a portion for business use,’ says Timothy Bartlett, lead business advisor, Seiva.
What types of car loans and leases are available?
By choosing to finance or lease your new car, you can avoid tying up your cash flow in a quickly-depreciating asset. Some of the available products include:
- Chattel mortgages are a popular finance solution where you own the asset from the outset and your loan agreement is secured by the asset. You can tailor your loan payments by choosing the term — typically up to five years. Other payment options can include a deposit and a final instalment. You can also look to structure payments to free up cash flow at times of the year when you need it most, noting this is subject to heightened acceptable credit assessment.
- With a finance lease the financier owns the asset, however, you bear the risk of disposal (of the asset) at the end of lease. This type of lease can benefit businesses that need the latest vehicles or equipment without tying up a large amount of capital. You can choose lease payments in advance or arrears and terms up to five years. A residual value is required in line with the asset’s use and the Australian Taxation Office’s guidelines.
There are a range of different forms of commercial loans and leases available in the market and these are governed by certain conditions and circumstances which may exclude you. We recommend that you talk to a financial adviser to see which solution is right for you.
Add up all the running expenses
Putting a car to work in your business costs more than the drive-away price. There’s annual registration, insurance, fuel, services and maintenance as well as financing fees and interest.
Know what you can afford to pay each month before you start negotiating. You may find a lease is a more cost-effective way to drive the car you really want. And remember, all these costs can be tax deductible expenses – even the cost of keeping your car clean. So, if they’re not included in your lease, keep those receipts!
Get organised to avoid fringe benefit tax (FBT) shock
‘There are two ways to calculate the taxable value of your vehicle,’ Timothy says. ‘Keeping a logbook for a minimum of 12 weeks is generally more tax-effective, but if you have a high proportion of private use you can use the statutory formula method and apply 20 per cent to the value of the car. For example, if your car is valued at $30,000 your FBT bill at the end of the financial year may be around $6000.’
He suggests using a mobile phone app to log your usage every time you get into the car.
‘Try using GoFar, Driversnote, Vehicle Logger, Driver Direct or the ATO app. At the end of the year, you should be able to generate a report to see what proportion of use was work-related.’
The ATO has highlighted that there will be stricter monitoring of commercial vehicles, such as utes for private use. So, it’s important to keep track of how much you use your vehicle for non-business activities.
Does a vehicle lease or commercial car loan sound right for your business?
We recommend that you talk to a financial adviser to see which solution is right for you.
Talk to a finance specialist at HIA Vehicles – powered by Macquarie Leasing – on 1300 650 776.
Asset finance, sourcing and other services are provided by Macquarie Leasing Pty Ltd ABN 38 002 674 982 (Australian Credit Licence 394925) (Macquarie Leasing). HIA Vehicles is a registered trading name and business name of Housing Industry Association Limited ACN 004 631 752, and Macquarie Leasing is licensed to use such name and other trademarks. This material has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL & Australian Credit Licence 237502 (“Macquarie”). Macquarie does not give, nor does it purport to give, any taxation advice (including any tax (financial) advice service). This information is for general discussion purposes only and is not an expression of opinion or recommendation, and does not constitute financial, accounting, taxation, general or personal advice and should not be relied upon as such. This information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on this general information, you must consider its appropriateness having regard to your own objectives, financial situation and needs. The information provided is not intended to replace or serve as a substitute for any accounting, tax or other professional advice, consultation or service.
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