According to the Australian Bureau of Statistics in 2018, 19.9% of all vehicles in Australia are freight carrying vehicles and 21% of passenger vehicle trips were made for business purposes. With so many businesses relying on vehicles, it makes sense to reduce tax and improve your vehicle’s profitability.
Whether you haul freight, visit clients or travel to drum up new business, you can always make your vehicle more tax efficient.
Follow the tips below to ensure that your tax bill is as small as it can be when using your vehicle for business.
Purchasing a vehicle and using tax breaks
Businesses that use a vehicle for conducting their activities are entitled to write-offs and deductions, especially when they opt to finance or lease their vehicles.
Financing a new vehicle with a chattel mortgage or hire purchase gives businesses multiple incentives and tax deductions.
Businesses can claim the GST paid on the purchase price of a vehicle on their business activity statement (BAS.) Business can also claim the fuel input tax credit, depreciation on the car, and interest on their repayments. Lenders may claim interest and pass on the savings to you, or you may claim the deduction directly.
Purchasing a vehicle with a chattel mortgage or hire purchase means you can finance over the value of the vehicle too – though talk to your accountant or financial advisor for more information.
Instant asset write-off scheme
The instant asset write-off scheme from the Federal Government gives you an instant $30,000 tax write-off for business purchases. If you use the vehicle for a mix of business and personal use, you may have to determine what portion you can claim instantly. If you only use it for business 20% of the time, you may be eligible for a $6,000 instant asset write-off. This is a significant saving especially for small businesses.
Collateral tax savings and claims
Businesses can claim most operating costs of their vehicle back on their tax. You can claim general running costs such as fuel, oil changes, logbook services, insurance, registration, and depreciation.
You can claim more around tax time if you keep good records. Keep reading to find out how to keep great records.
How to keep good records
Keeping better records means better and more precise tax deductions. If you run a company or trust, you can use the logbook method. This means keeping a log of your travel for 12 weeks and calculating what part of your expenses relate to the business use of the car.
Filling out log books year round can waste time and often go forgotten. Don’t forget to keep receipts for every transport and automotive related expense. Keeping receipts can be troublesome but is well worth it come tax-time
There are many smartphone apps out there that help you keep track of kms driven, store photos of receipts, and more. Apps for such as Driversnote or LogbookMe can save you or your employees a lot of time in keeping records. Some even have in-built GPS to automatically track how long trips take. They can then auto-fill data or have it sent to your admin department. When looking for these apps, make sure the app you choose is ATO compliant. Some great choices include ATO logbook and Driversnote app. Other methods such as connecting a data module to your car’s data port may work better for you (you will have to check if your car is fitted with one).
What type of business can determine your tax savings
If your company or trust owns a vehicle and gives it to employees to use, you may have to pay additional fringe benefits tax. Having individual employees own their vehicles and run their costs through the company may reduce your tax overall. Companies and trusts must use the logbook method to keep records for tax time.
If you run as a sole trader or partnership, you can use the less precise cents per kilometre method, which allows you to claim a maximum of 5,000km at 68c per kilometre. This may be worth your while if you do not use your vehicle that often.
Having good records, claiming every expense you can will leave your business better off in terms of tax. Your vehicle should drive your dollars further by becoming tax efficient!
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