Motor Vehicle Tax Questions Answered
From CIB March 14
In the words of the late Kerry Packer:
“I am not evading tax in any way, shape or form. Now of course I am minimising my tax and if anybody in this country doesn’t minimise their tax they want their heads read because as a government I can tell you you’re not spending it that well that we should be donating extra.”
While many people think they understand the existing tax regulations, myths and misconceptions still abound. In this article, we aim to address some of the more common tax questions:
Question 1:
“If I put a work sticker on my car, can I deduct 100% of my car expenses?”
Answer:
Simply – no. Deductions are based on four different methods. The methods are:
- Cents per kilometre (limited to 5,000 business kms per year)
- 12% of original value (this can be used if you travelled more than 5,000 business kms per year)
- One-third of actual expenses (this can be used if you travelled more than 5,000 business kms per year)
- Logbook method (this requires a logbook to be kept over a continuous 12 week period; the logbook can last for five years as long as it still represents continued use of the car).
Whether the car is heavily branded with work logos or not, the deduction only applies to kilometres travelled for business. Travel from home to work or work to home are not deductible. Attending meetings, running business errands and the like are deductible.
For those individuals who do use their car extensively for work in terms of kilometres travelled, log books are good. For those who do not use their car extensively, speak with your Chartered Accountant to determine which deduction method to apply.
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Question 2:
“I’m looking at buying a car, should I lease, hire purchase or Chattel mortgage?”
Answer:
A lot of time can be spent analysing the benefits of each purchase option however it usually comes down to personal preference. Chattel mortgage and hire purchase (for tax) are treated similarly. Some agreements that say “lease” are actually hire purchase upon reading the detail.
Before committing to any such agreement, have your Chartered Accountant look over the document, or better, still call your Chartered Accountant before you get the finance.
Here is a brief matrix of the two:
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In the current environment, getting finance can be a struggle however it is the preferred option over paying cash. For most small business owners, taking the simplest option is preferred which, in this case, would be the lease option.
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