A common question from business clients looking to purchase a vehicle is: “Should I buy it in my business name or my personal name?”
The answer depends on the car’s cost, operating expenses, and how it will be used.
Here are key considerations to help determine which option provides the best tax deductions:
Personal Ownership
If a vehicle is owned personally, you have two methods for claiming deductions:
- Log Book Method: This involves applying the business-use percentage to actual expenses, such as fuel, repairs, registration, and insurance. The log book must be maintained accurately and updated every five years.
- Cents Per Kilometre Method: You can claim a flat rate of 78 cents per kilometre for business travel, capped at 5,000 kilometres per year.
Business (Company or Trust) Ownership
If the vehicle is owned by a company or trust, all expenses can be deductible. However, to avoid fringe benefits tax (FBT), a contribution for private use must be made. The deductible amount is the total costs paid minus the private usage contribution.
- FBT and Private Use: Without a valid log book, private use is deemed at 20% of the car’s original cost price. This rate stays consistent for four to five years. NB the rules differ for some EVs so always check with Allan Hall first. Read more »
- Depreciation: The ATO allows you to depreciate a vehicle at 12.5% per year on a prime cost basis or 18.75% on a diminishing value basis, up to a capped cost price of $69,674 (current ATO limit)
- High-Cost Vehicles: For vehicles priced above $69,674, the deemed private portion at 20% can exceed total deductible expenses, making it less tax-effective for a company to own expensive cars.
Tax Planning Strategies
To maximise tax benefits, consider these strategies:
- Initial Business Ownership and Transfer: Acquire the car in the company’s name and transfer it to personal ownership after 12 months at its market value. The company may claim a deduction for the loss in value, typically around 35% in the first year.
- Leasing Strategy: Lease the car under the company for one year with a 65% residual value. Afterward, purchase the car personally by paying the residual. This can optimise deductions and balance ownership costs.
Choosing between personal or business ownership of a vehicle involves detailed analysis of expenses, depreciation and tax implications. Consulting your Allan Hall Tax Advisor can help you run tailored calculations and find the most tax-efficient approach for your circumstances.
Reach out today for a personalised assessment of your vehicle purchase strategy.