Tax Benefits of Buying a Car

Big Fat Disclaimer – I am not an accountant – you should check with your accountant regarding any buying decisions that are made with an aim of taking advantage of tax benefits. So there you go :-).

Anyway, here is some handy information about using your vehicle for business or work purposes and potentially getting some handy tax benefits.

Using your car for business purposes can create a taxable deduction.

If you are legitimately using your vehicle for business purposes then you may well be eligible to claim part of the running costs (maintenance, fuel, insurance, registration etc) and purchase price or lease costs of the car as a tax deduction.

Travel from your home to workplace does not constitute business use, however travel from you business premises to appointments does. If you are atypical employee driving to and from work each day, chances are that you are not eligible for a tax benefit.

Two common types of car finance that is available and used by individuals looking to get some tax benefits are Hire Purchase and Chattel Mortgage.

Hire Purchase financing allows you to pay off monthly repayments on a vehicle to a bank and then own the car at the end of the agreed term. In this scenario, the bank actually owns to vehicle until such time as you have completed all the monthly payments in the lease term.

With this option, as a business owner entitles to GST input tax credits, you claim the expense and associated GST as you go (on the monthly payments)

Chattel Mortgage financing  differs from Hire Purchase in a couple key ways. Firstly, you are the owner of the vehicle from the outset. You depreciate the value of the car over a number of years and are able to claim the GST paid on the entire car value upfront.

You make regular monthly payments to the bank that secures the funds for you and may or may not have a balloon payment owing at the end of the mortgage term. Read our complete chattel mortgage guide here.

Salary Packaging your car: If you are an employee, there is a chance that your employer will offer salary packaging for employees. In salary packaging a car, your employer will take responsibility for the monthly repayments on your vehicle and then deduct an amount equal to the monthly payments from your pre-tax dollars.

The benefit to you is that a portion of money that you would otherwise have paid in tax gets attributed to your monthly car payment (as opposed to paying the whole payment out of after-tax dollars).

Employers often look towards salary packaging as a way to provide financial benefits to employees without having to pay them a higher wage or salary. This is typically done through a form of packaging for cars called a Novated Lease.

For an expanded overview of car finance options, view our Australian car finance guide.