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Purchasing a car through your company can offer significant financial and tax benefits, making it an attractive option for many business owners. From potential tax deductions to improving your business’s cash flow and asset portfolio, there are several advantages to consider. However, it’s essential to weigh these benefits against potential downsides, such as Fringe Benefits Tax (FBT) and increased administrative tasks.
Pros of Buying a Car Through Your Company
Q: What are the benefits of purchasing a car through my company?
A: There are several advantages to buying a car through your business, especially when it comes to tax and financial benefits.
- Tax Deductions:
- Depreciation: One of the primary benefits is the ability to claim depreciation on the vehicle. The cost of the car can be written off over several years, reducing your company’s taxable income.
- Running Costs: You can claim deductions for operating costs such as fuel, maintenance, insurance, and registration. These expenses can significantly reduce your overall tax liability.
- GST Credits: If your business is registered for GST, you may be able to claim a GST credit for the purchase of the vehicle and its running costs.
- Improved Cash Flow:
- By financing the car through the business, you can preserve personal cash flow and potentially take advantage of business loan rates, which may be more favorable than personal loan rates.
- Asset Ownership:
- The vehicle becomes a company asset, which can improve your business’s balance sheet. This may be beneficial if you’re looking to secure financing or attract investors.
- Employee Benefits:
- If you plan to offer the vehicle for both business and personal use, it can serve as an attractive perk to employees or yourself as a director, potentially enhancing job satisfaction and retention.
Cons of Buying a Car Through Your Company
Q: What are the downsides of purchasing a car through my company?
A: While there are advantages, there are also potential drawbacks to consider.
- Fringe Benefits Tax (FBT):
- If the vehicle is available for personal use by you or your employees, your company may be liable for Fringe Benefits Tax (FBT). FBT can be a significant cost and may outweigh some of the tax benefits gained from claiming deductions.
- Increased Administration:
- Managing a company vehicle can involve additional paperwork and administrative duties, such as keeping a logbook, managing FBT reporting, and ensuring compliance with ATO regulations.
- Asset Depreciation:
- While depreciation is a tax deduction, it also means that the value of the car will decrease over time, potentially impacting your business’s overall financial health.
- Usage Restrictions:
- If the vehicle is owned by the company, there may be restrictions on how it can be used, particularly in terms of personal use. This could lead to complexities in distinguishing between business and personal usage.
Tax Implications and Considerations
Q: What are the tax implications of buying a car through my company?
A: The tax implications of purchasing a car through your company can be complex and depend on several factors, including the structure of your business and how the vehicle will be used.
- Claiming Deductions:
- To claim deductions on the vehicle, it must be used for business purposes. If the car is used for both personal and business purposes, you can only claim deductions for the business portion of the use. Keeping a detailed logbook is essential to accurately claim these deductions.
- Fringe Benefits Tax (FBT):
- If the car is available for personal use by you or your employees, FBT applies. The amount of FBT payable is calculated based on the taxable value of the benefit. However, there are methods to reduce FBT, such as using the vehicle primarily for business purposes or opting for a low-emission vehicle.
- Instant Asset Write-Off:
- Depending on the current tax laws, your business may be eligible for an instant asset write-off, allowing you to immediately deduct the cost of the vehicle up to a certain threshold. This can provide significant tax relief in the year of purchase, but the rules around this can change, so it’s important to stay informed.
- GST Credits:
- As mentioned earlier, if your business is registered for GST, you may be able to claim back the GST on the purchase price of the vehicle and its running costs. This can be a considerable saving, especially for more expensive vehicles.
Should You Buy a Car Through Your Company?
Q: How do I decide if buying a car through my company is the right choice?
A: The decision to buy a car through your company depends on your specific circumstances. Here are a few questions to ask yourself:
- How much will the car be used for business purposes?
- If the vehicle will be used primarily for business, purchasing it through your company could offer significant tax advantages. However, if it will be used mostly for personal reasons, the FBT implications might outweigh the benefits.
- Can your company afford the additional costs?
- Consider the ongoing costs of owning a vehicle through your business, including maintenance, insurance, and potential FBT. Ensure your business has the cash flow to cover these expenses without negatively impacting other areas.
- Are you prepared to handle the administrative burden?
- Managing a company vehicle involves more administration, particularly in tracking business vs. personal use and managing FBT reporting. Make sure you’re ready for the extra workload or have the resources to manage it effectively.
Contact The Experts
Buying a car through your company can be a smart financial move, but it requires careful consideration and planning. At Latitude Accountants, we can help you weigh the pros and cons, navigate the tax implications, and ensure you make the best decision for your business. Contact us today to schedule a consultation and learn more about how we can assist with your business’s financial needs.
Need help with Accounting? Contact Latitude Accountants today for expert advice and personalised assistance. Let us help you navigate the complexities of accounting and keep your business compliant.
Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute professional advice. While we strive to ensure the accuracy and relevance of the information, we cannot guarantee that it is free from errors or omissions. The application of tax laws and regulations can vary based on individual circumstances and changes in the law. We recommend consulting with a qualified accountant or tax professional for advice tailored to your specific situation. Latitude Accountants accepts no liability for any loss or damage caused by reliance on the information contained in this blog.