The rules around car deductions and tax issues seem to get more complicated every year.
Here are 10 points to keep in mind when considering your tax situation and cars:
1. Most vehicles require a log book in order to maximize a tax deduction to claim against income.
2. A log book must be kept for 12 weeks and is valid for 5 years. It can be transferred to a new car provided your usage has not changed. It can be done on paper or electronically. Despite the pain of doing one in my experience, this is a very lucrative way to reduce your tax bill.
3. If you earn wages the way we claim a deduction is either by way of a log book or using a set rate per KMs driven. This latter option is much easier to do but the claim is limited. The maximum KMs you can claim per year is 5,000km.
4. If you’re buying a new car always check with your accountant and more often than not, if you drive a lot for work it is likely worthwhile to complete a log book.
5. Business vehicles are exposed to generating fringe benefits tax (FBT). This is the perceived personal value you receive from a business asset. This is often where a log book helps calculate and minimise this amount for a business.
6. At present the ATO are exempting new electric and hybrid vehicles from FBT meaning you can buy one in your business and not have to prove you use it for business at all (this could change in the future).
7. A car costing $68,108 cannot be fully claimed for tax even if it’s a 100% business-use vehicle. This is called the car limit by the ATO.
8. Don’t mix this up with the luxury car limit – this is where high-value cars have an additional car tax applied to the buyer.
9. GST can often be claimed on a business vehicle so take into account that adjustment if comparing buying from a dealership to second hand privately.
10. If you want the benefit of claiming the car against assessable income be aware when you sell it you will get stung with having to declare the sale proceeds as taxable income.
Always happy to talk about your personal situation to help you navigate these issues and your unique requirements.