If you own a registered small business and use your car mostly for work, then you may wish to know where you stand when it comes to tax allowances, and how these should be divided between the business and your personal tax statements.
This in turn affects your position when you come to finance and purchase a new car. Let’s say that you use the car on a daily basis for business purposes – in other words, throughout the day, and not just driving to and from your place of work. Providing all criteria are met, the business can reimburse you for the costs of purchasing and running the car, and then reclaim the GST through its quarterly Business Activity Statement.
And the criteria?
The vehicle must be used directly for the activities of the business, the purchase cost must have included GST, and the business receives a tax invoice from the seller. In other words, it has to be one or the other:
- The business buys the car and reclaims the GST.
- You buy the car and have to register for GST yourself.
If you are an employee of the business, and aren’t personally registered for GST, you’re not entitled to a GST credit for the purchase. However, you can claim a large percentage of your vehicle expenses from the business on a monthly basis, while making a deduction for the depreciation of the vehicle on your personal tax return.
There is one other way to navigate the criteria. If you register for GST personally, you could then claim the GST included in the purchase cost, before entering into a contract to provide the business with a fully maintained vehicle. That effectively means that you’d be renting the car out to your business. Once again, looking at it from both perspectives:
- The business could then claim a tax deduction for the hire costs, as well as the GST component of the rental fees.
- You would include the rental income in your assessable income, offsetting the GST component of the purchase and running costs against the GST included in the rental fee.
What happened next would be that in the first quarter following the purchase, you’d receive a substantial GST refund, due to the GST in the vehicle’s cost. However, you’d be more likely to have to pay GST to the ATO from the second quarter onwards, due to the rental fee you’d be receiving.
We can help you to consider the possibilities of purchasing a new commercial vehicle for your business, although we always recommend you talk to your own accounting advisors first. You can also read more about the ATO regulations here.