Financing a car for business: the tax basics to discuss with your accountant

What kinds of expenses may be involved

The ATO says business owners can claim a deduction for expenses for motor vehicles used in running the business, where the vehicle is owned, leased or under a hire-purchase agreement. The types of expenses it lists include:

• Fuel and oil
• Repairs and servicing
• Interest on a motor vehicle loan
• Lease payments
• Insurance premiums
• Registration
• Depreciation (decline in value)

Business use versus private use

If a vehicle is used for both business and private purposes, only the business-use portion can be claimed, and you need to be able to justify the percentage. The ATO notes that travel between home and your place of business is generally private use, with some exceptions for home-based businesses. Where private use occurs in some business structures, fringe benefits tax may apply.

Why logbooks matter

Good records are what support a claim. For sole traders and partnerships claiming for a car under the logbook method, the ATO says the logbook must cover at least 12 continuous weeks that are representative of your travel for the year, and a logbook is generally valid for five years unless your circumstances change. Receipts and odometer records are also needed.

Structure and vehicle type change the rules

The calculation methods differ depending on whether you're a sole trader, partnership, company or trust, and on whether the vehicle is a 'car' for tax purposes or another vehicle such as a ute designed to carry a tonne or more. There's also a limit on the cost used to work out depreciation for cars. This is why the same vehicle can be treated differently for two different businesses.

Finance structure matters too

Chattel mortgages, finance leases, hire purchase and novated leases are each treated differently for tax and GST. Before you choose a finance structure, ask your accountant which suits your situation. We can then arrange the finance to match.

General information only

This article is general information only. It does not take your personal circumstances into account and is not personal credit, legal, tax or financial advice. Tax rules and thresholds change, and how they apply depends on your circumstances. Speak with your accountant or registered tax agent, or check ato.gov.au, before making any claim or decision. All finance is subject to lender assessment and approval.

Related finance