Buying a Car

Cars

There are 2 types of cars

• Type 1 = car (eg. suv, sedan)
• Type 2 = vehicle (eg. ute, van) - not principally designed to carry passengers

Type 1 = car (eg. suv, sedan)

You can claim a deduction for work use using 1 of 2 methods (choose the best method each year)

• Cents per km method (individuals, sole traders and partnerships only)
• Log Book method

Cents per km method (individuals, sole traders and partneships only)
Claim up to 5,000 work km (based on a reasonable estimate) x ATO set rate

-2021-22 rate is $0.72 per km
-Based on a reasonable basis
-You need to show how you worked out your claim
-Log book is not required
-You do not need receipts

Log book method
Claim actual expenses by work use % - based on log book

Expenses include Fuel, Rego, Insurance, Repairs, Depreciation, Finance Interest

Depreciation
Claim 25% of the car cost up to car limit ($60,733 for 2021-22 tax year) reduced by personal use

Special depreciation rules apply for small business entities (SBE) using simplified depreciation up to 30/06/2023

You must claim 100% of depreciation in the year the car is purchased provided installed & ready for use - reduced by an non-business use

GST
If registered for GST you can claim GST up to the car limit (max $5,521 for 2021-22 tax year) reduced by any non-business use

Example 1- you buy car for $55,000 including GST - used 60% per work

GST claimed = $55,000 / 11 = $5,000 x 60% = $3,000

depreciation claimed yr1 = $55,000 - $5,000 GST = $50,000 x 25% = $12,500 x 60% = $7,500
depreciation claimed yr2 = $50,000 - $12,500 = $37,500 x 25% = $9,375 x 60% = $5,625
depreciation claimed yr3 = $37,500 - $9,375 = $28,125 x 25% = $7,031 x 60% = $4,218
and so on

If you are NOT registered for GST the depreciation is

depreciation claimed yr1 = $55,000 - $0 GST = $55,000 x 25% = $13,750 x 60% = $8,250 and so on
 

Log book rules

-Log book must be started by 30/06 in the year you wish to use it
-Must be kept for 12 consecutive weeks that is representative of your travel throughout the year
-Lasts 5 years, even if your change cars
-Must keep opening / closing odomter readings each year
-Must estimate work use each year - if work use varies > 10% from original log book % then need to do a new log book
-Must keep receipts for 5 years

Finance
Finace using Chattel Mortgage (preferred if registered for GST), or Hire Purchase

Fringe Benefits provided to employees
If your business provides car benefits (non-exempt car eg SUV) to an employee and there is private use you will be required to lodge a fringe benefits tax (FBT) return and pay tax on the private use.

Directors and their associates eg spouse can allocate their private use to their loans accounts and avoid paying FBT but they may need to pay dividends to reduce their loan account to nil.

Type 2 = motor vehicle (eg. van, single cab utes, some dual cab utes)

You can claim 100% of your vehicle costs & GST (i.e. car GST and depreciation limits do not apply) provided your private use is

• minor
• infrequent
• irregular

Private trips must be

-less than 200km per trip
-less than 1,000km per year
-diversions between home and work should be less than 2km in total

Having a child seat in your vehicle for instance indicates the private use is not infrequent

Private trips to / from work are disregarded

You DO NOT need a Log Book

Dual Cab Utes - special rules apply

If the payload (GVM - kerb weight) is under 1 tonne = car (type 1)
If the payload (GVM - kerb weight) is over 1 tonne = vehicle (type 2)

Note - altering the manufacturer's specifications from say 950kg to 1020kg will not change the car from type 1 to type 2

Example 2- GST registered business buys an exempt vehicle for $110,000 including GST on 12/05/2022 and takes delivery by 30/06/2022

GST claimed = $10,000
Immediate depreciation claimed = $100,000

Fringe Benefits provided to employees

If your business provides car benefits (non-exempt car eg SUV) to an employee and there is private use you will be required to lodge a fringe benefits tax (FBT) return and pay tax on the private use. 

Directors and their associates eg spouse can allocate their private use to their loans accounts and avoid paying FBT but they may need to pay dividends to reduce their loan account to nil.

ATO-MV-fact-sheet-sole-traders-companies.pdf (216kB)