The landscape for motor vehicle tax deductibility has changed. This is because the immediate asset write off has been reduced to $20,000, so most vehicles will now go back to small business annual % depreciation, and secondly, the prices of cars have skyrocketed whilst the maximum deductible car limit isn’t keeping pace, currently $68,108.
So let’s say you are going to buy a reasonably expensive car, say new Audi Q7 or BMW M5 or a Toyota Landcruiser, you probably assume that the best place to buy it is in the company, so you get the best tax deduction, right? And it’s better for GST too, right? In many cases the answer is NO, the company is not the most tax effective place to buy/own/operate this car. It is often better to own the car personally, forgo the GST, and claim the motor vehicle costs as a personal tax deduction. You might need to re-jig your company salary package to incorporate or add a MV allowance. Also, you would absolutely need to keep a proper log book to show business use % (work related deductions get more audit activity than company motor vehicle expenses).
This personal ownership and claim strategy works best when;
- The car is somewhat expensive
- The car is a genuine high % work vehicle and can be justified by log book
- The individual is on the top tax bracket or close to it
- The car will likely be sold or traded after 3-5 years (not kept for 10years)
Just on the GST side of things, an interesting but highly unreasonable tax rule – if you buy a car for say $165,000 you only get to claim $6,192 back in GST, but when you sell it in five years time for say $110,000 you have to pay GST on the full 1/11th of the sale price, in this case $10,000. So there is no GST benefit on buying the car, and in fact you have generated a net GST payable.
Please feel free to contact us when you next buy a vehicle if you think this might be applicable to you.
