You’ve decided you need a new vehicle for work. The next question is often: who should actually buy it?
Should the vehicle be purchased by your company? Should you buy it personally and claim the business use? And does putting the finance in the business name change anything?
There isn’t one answer that suits every business. How the vehicle is owned and used can affect tax deductions, GST, Fringe Benefits Tax (FBT), record keeping and what happens when you eventually sell it.
Here are some of the main things to consider before you sign the contract.
Buying the Vehicle Through Your Company
If you operate through a company, one option is for the company to purchase the vehicle.
The company can generally claim deductions for the business costs of owning and operating the vehicle, subject to the usual tax rules. If the company is registered for GST, it may also be entitled to claim GST credits on the purchase and running costs to the extent permitted under the GST rules.
However, there’s an important catch: private use.
If a company-owned vehicle is available for an employee or director to use privately, this can give rise to a car fringe benefit and potentially an FBT liability. Private use can include much more than weekend trips — for many cars, simply having the vehicle garaged at an employee’s home and available for private use can be relevant.
There are concessions for certain commercial vehicles, such as eligible utes and vans, where private use is sufficiently limited, but owning a ‘work ute’ doesn’t automatically mean FBT can be ignored.
What If You Buy the Vehicle Personally?
Another option is to own the vehicle yourself and claim deductions for eligible work or business use.
For a sole trader, the tax treatment will generally depend on the business-use percentage and the deduction method available to you.
If you work for your own company, the company and you personally are separate taxpayers. Rather than simply treating your privately owned vehicle as a company asset, there may be options for the company to reimburse or pay you for eligible work-related travel, depending on the circumstances and how the arrangement is structured.
Personal ownership can sometimes simplify the FBT position, but it doesn’t necessarily mean it produces the best overall tax result.
Good records are still essential, particularly where a vehicle is used for a mixture of business and private travel.
What About Finance?
This is where another common misconception comes in.
Putting the finance in the business name doesn’t, by itself, make a vehicle a business vehicle or make all of the repayments tax deductible.
The underlying purchase, ownership and use of the vehicle still matter.
If a vehicle is purchased using a loan or chattel mortgage, the principal component of each repayment isn’t simply a motor vehicle expense. The purchase of the vehicle and the finance used to pay for it are accounted for separately, while interest and other finance costs may be deductible subject to the relevant rules.
This is why we generally need both the vehicle purchase invoice and the finance agreement, rather than just the monthly repayments appearing in the bank account.
GST Can Make a Difference Too
For GST-registered businesses, GST can be an important part of the decision.
Depending on the ownership and business use of the vehicle, the business may be entitled to a GST credit on some or all of the GST included in the purchase price and ongoing expenses.
However, there are special rules for more expensive passenger vehicles, including limits on the GST credit available where the vehicle exceeds the relevant car limit.
Private use can also affect the amount that can ultimately be claimed, so purchasing the vehicle through a GST-registered business doesn’t automatically mean you’ll simply “get all the GST back”.
Don’t Forget the Tax Deduction
How and when the cost of the vehicle is deducted can depend on the vehicle, its cost and the entity purchasing it.
A vehicle isn’t necessarily an immediate tax deduction simply because it was bought for the business. Depreciation rules, the instant asset write-off where available, and the car limit for certain passenger vehicles can all affect the deduction.
And remember: a tax deduction only reduces your taxable income. It doesn’t give you the purchase price back.
Buying a more expensive vehicle purely to obtain a bigger deduction rarely makes sense if you didn’t otherwise need to spend the money.
Think About What Happens When You Sell It
The tax consequences don’t end when you buy the vehicle.
If the business has claimed depreciation or other deductions for a vehicle, selling or trading it later can result in tax adjustments. GST may also apply to the sale where the vehicle is owned by a GST-registered business.
That’s another reason to consider the full life of the vehicle rather than focusing only on the tax deduction available in the year you buy it.
So, Which Option Is Best?
It depends on your circumstances.
Before deciding whose name should go on the contract, it’s worth considering:
- who will actually use the vehicle and how much will be private;
- whether you’re a sole trader, company or another entity;
- whether the business is registered for GST;
- whether FBT could apply;
- the cost and type of vehicle;
- how the purchase will be financed; and
- how long you expect to keep it.
For some businesses, company ownership will make sense. For others, owning the vehicle personally and dealing with the business use separately may be simpler or more appropriate.
The Bottom Line
When you’re buying a vehicle for work, whose name it goes in isn’t just an administrative decision. It can change the tax, GST, FBT and record-keeping consequences for both the business and the owner.
Ideally, have the conversation before you purchase the vehicle, not after the contract and finance documents have already been signed.
If you’re considering a new business vehicle, get in touch with the team at Geyer Accountants. We can look at how the vehicle will actually be used, your business structure and the different tax implications to help you decide how best to purchase it.
