Are you considering the purchase of a motor vehicle for your business? Sounds pretty straight forward but there's actually quite a few things you should consider if you want to maximise the benefits and minimise the cost. Here's the top tips from our advisors.
1. What will the vehicle be used for?
Consider what the vehicle's primary use will be. The type of vehicle you purchase should reflect the role it will play in your business. For example if you need a car for short trips to deliver documents or visit customers to provide quotes a small, compact car might be best. If you're a tradesperson and need to carry equipment, a van or ute makes sense.
2. New v Used v Certified used?
Having decided the primary purpose you then need to decide whether you buy a new, used or certified used vehicle.
- Buying "new" means higher prices, better reliability, newer features and up to 20% depreciation once you buy.
- "Used" means lower initial cost, questionable reliability, low residual value and cheaper insurance premiums.
- "Certified used" is the best of both worlds. These are dealer-refurbished cars with low kilometres, one prior driver and reasonably high residual value.
The decisive factor here is determined by your car's primary use as an asset, and how long you intend to keep it. If your business needs a vehicle for the long-term, longer than you intend to loan it, then it makes sense to buy a vehicle with high residual value and at the top of its lifespan. If your business only uses a car occasionally, then a used car that won't gather much wear and tear makes more sense.
3. What name to buy the vehicle in
Give consideration to what name you should purchase the vehicle in, your own or the business name. There may be tax benefits either way depending on your circumstances. For example your business structure will affect the deductions you can claim for the motor vehicle expenses you incur.
4. Outright v Finance v Lease
To ensure you maximise the advantages of purchasing a vehicle for your business you need to ensure that how you pay for it is the most appropriate approach for your business. Consideration needs to be given to whether you purchase the vehicle outright, seek finance or lease and if so, what type of lease. Claiming a tax deduction for the cost of a motor vehicle can differ significantly depending on how the vehicle is purchased. For example a leased vehicle used entirely for business allows for a tax deduction on the whole of the lease cost. Other forms of finance result in the vehicle being shown as an asset of the business and the tax deduction is made up of depreciation and interest charged on the finance.
5. Claiming GST
If you use a motor vehicle solely for business purposes you're generally entitled to claim a credit for the GST included in the price of the vehicle. Similarly, if you use a motor vehicle partly for business purposes you're generally entitled to claim a partial GST credit based on how much you use the motor vehicle in carrying out your business.
There are also differences in the way GST is accounted for under different methods of purchase.
Businesses can claim the GST on their BAS, interest payments and depreciation. They can also claim the fuel input tax credit.
6. Don't forget the small business tax break
Finally, if you are a small business entity with a turnover of less than $2 million and you purchase an asset costing less than $20 000 including GST before 30 June 2017 you may be eligible to claim an instant asset write-off meaning you can claim the full cost of the asset in the year you buy it.
Before purchasing a motor vehicle for your business talk to your Advisor first for guidance to ensure you act in the best interests of your business.