At some point in your business, you may hit a point where you decide it's time to get a car.
It could be at the start, and the car could be a requirement (like a Ute to get around with your tools, or a Van to make deliveries). Or it could be later on, and the car could be a "nice to have" (like a fancy european sedan to show up to meetings with).
But buying a car in your business is tricky, and trying to get clear info can be a bit overwhelming - so here are the top 3 considerations when buying a car in your business.
1. Finance Methods
Unlike buying a car personally, when you buy in a business there are way more ways to finance the purchase.
Normally, you'd be able to buy a car in cash, or pay a deposit and finance the rest, or sometimes finance the whole thing.
With a business, you have those options too - but the finance side of things becomes tricky because of all the options.
- Chattel mortgage - they lend you the money, you take ownership of the car, but they have a mortgage over it.
- Commercial hire purchase - the lender actually buys the car, you get to use it while you're paying. You don't own the car until the final payment.
- Finance lease - the lender buys the car, leases it back to you for a fixed monthly rental. At the end you have the option of taking ownership, trading it in, or extending the lease.
- Operating lease - the same as a finance lease, except they include all the operating expenses and you just give it back at the end of the agreement.
- Novated lease - similar to an operating lease, except it's for an employee and they forgo a portion of the pre-tax income to cover the costs.
Each option has GST and Fringe Benefits Tax considerations, so if you're not sure which is best it can be worthwile talking to your accountant.
2. GST
When you're buying a car, GST is awesome. But claiming it, well... that changes based on your method of finance.
If you get a chattel mortgage, you get to claim GST upfront (awesome).
If you end up going with a hire purchase, there is a super weird calculation we have to do which apportions GST on each payment. The amount continualy changes on EVERY payment, so it's definitely something you get your accountant to sort out for you.
If you end up with a lease, there will be a fixed GST portion on every payment.
3. Fringe Benefits Tax
Fringe Benefits Tax (or FBT) is a real pain. Basically, any personal benefit you get as an owner of the business can incur FBT (which feels like it almost doubles what you paid originally).
And of course, that can include your car usage too!
If you use your car for anything personal - even travelling from home to work in some cases - you're likely to be liable for the extra tax. If you want to do your best to avoid being liable, it's best to talk to your accountant before you buy the car.
While FBT is a really complex area of tax, with heaps of rules and exceptions, as specialist tax accountants we know the ins and outs to help minimise the potential impact.
What now?
If you're looking to buy a car and want tailored advice for YOUR situation, give us a call. You can come down to our office in Parramatta and have a coffee and a chat to make sure you get the right advice.
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