What motor vehicle expenses can I claim for my business?

cars parked in a row

Here’s the deal. Everyone is trying to make the most of their ability to record their personal vehicle use as a business expense, and in response, the ATO is doing their best to minimise the eligible criteria.

When you’re a client of ours, you won’t have to worry too much – we make sure you always claim the right amount. But regardless, let’s explore how the system works.

Motor vehicles for employees, sole traders and partnerships
Motor vehicles for companies
GST, loans and leasing FAQs
Is it smarter to borrow money to purchase a vehicle, or lease instead?

Motor vehicles for employees, sole traders and partnerships

If your vehicle is used solely for business or work purposes, all motor vehicle expenses (fuel, maintenance, servicing, insurance, registration, replacement tyres, and similar) can be claimed as expenses.

But business purposes don’t include school drop-offs, going to the supermarket, or even travelling between home and your regular place of work. The only possible exception here is when your home also acts as your office and you have no fixed place of work..

When an employee, sole trader or partnership chooses to use a business vehicle privately, too, the costs need to be separated.

One reporting option is keeping a logbook

A logbook records all travel over 12 weeks. It notes the distance, date and reason for each trip. This information can then be used to understand the proportion of use allocated to the business, and we then apply the percentage of business travel to all vehicle expenses incurred. I.e if it’s 70% of the time, 70% of insurance or a service can be claimed as a business expense

Assuming your travel habits don’t change significantly, your logbook can be valid for up to five years.

There’s also some good news about logbooks.You can digitise the whole process with an app to save time. You may want to check out Driversnote or the ATO’s myDeductions app.

No logbook

If you don’t intend to keep a logbook, you can claim $0.72 per kilometre for up to 5,000km. You’ll still need to track your business travel, but without as much detail as in a logbook

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Motor vehicles for company structures (as opposed to sole traders)

When it comes to companies, motor vehicles used for private purposes are treated differently to sole traders.Here’s how the “Motor Vehicle Reimbursement” (also known as “FBT employee contribution”) works.

If a director or shareholder of the company decides to use the vehicle for private use, this benefit they’re receiving must be recorded in the company’s financial statements. We call it a benefit that the shareholder is receiving, because they don’t need to purchase a car, and the company is paying for their vehicle expenses.

The company must be reimbursed for this benefit.

We calculate the reimbursement based on either a logbook or the vehicle’s value when it was brought into the company, and the number of days it’s available for private use. The reimbursement is then recorded as a separate income line in the company’s financial statements (it’s considered income because the company is receiving compensation from the director or shareholder).

It’s important to understand the concept of availability. Shareholders reimburse the company for any day that the vehicle is available to them – which includes when it sits in their driveways.

Exceptions to this rule exist where a vehicle serves a specific function, which cannot take passengers (considered an exempt vehicle) and the vehicle has private usage that is minor, infrequent and irregular. 

The FBT contribution also applies to non-shareholder employees. Their benefit falls under the Fringe Benefits Tax (FBT) regime and is accounted for similarly.

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GST, loans and leasing FAQs

Can I claim GST on a personal vehicle that I use for business?

You can, indeed. If you’re a sole trader, you can record the vehicle as a business asset. GST can be claimed on its market value at the time the vehicle is introduced to the business

If you operate through a company, the business is able to claim the GST on the business usage of the running expenses of a personal vehicle.

How much GST can I claim if I borrow to buy a vehicle?

You can claim up to the car limit up-front. The car limit for 2021-22 is $60,733.00 resulting in a GST credit of $5,521.00.

Again, just provide us with the sale and purchase agreement and your financing arrangement. We’ll enter it into Xero and make sure the full purchase price is picked up in your next GST return.

Are my loan repayments a business expense?

They aren’t. The payments are going towards reducing your loan balance. However, we can claim the interest on the loan for business purposes. We make this adjustment when we prepare your financial statements.

What happens when I sell a business vehicle?
  • If you’re registered for GST, you need to include GST on the sale price
  • If the sale is to yourself or a related party, you’ll need to know its market value (you’re not allowed to sell it to yourself for $1)
  • Tax must be paid on any profit from the sale
  • Your asset needs to be removed from the fixed asset register. But it’s best you leave that to us
  • If the proceeds from the money don’t go through your Xero bank account, you just need to provide us with the sale price and we’ll take it from there

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Is it smarter to borrow to purchase a vehicle, or lease instead?

It depends. 

If you borrow:
  • The vehicle belongs to you or the company, assuming you meet the loan conditions
  • GST can be claimed on the full purchase price  (up to the car limit)
  • It’s an asset, and we will depreciate it as an expense over a number of years or can write if off thee full expense under current legislation
  • The loan repayments are not deductible, but the interest portion is
When leasing a vehicle:
  • In nearly all cases, the vehicle doesn’t belong to you or the company.
  • It’s not a business asset, so we can’t depreciate it.
  • You can claim GST on each payment.
  • The lease payments are fully tax deductible. 

Here’s when we often get the follow-up question: “What is my best option for tax purposes?”

That’s one we can’t answer. It’s more of a business decision and it depends on your cash-flow, available finance and personal preferences.

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