How to buy and finance a car is one of the most common questions we get asked. There are different options on how to finance a car and pros and cons associated with each depending on your circumstances.
- Who should own the vehicle? This will depend on your circumstances, whether the vehicle will be used for personal or business use, etc.
- How should I finance the vehicle? Determining whether you should purchase the vehicle outright or finance via lease, hire purchase, chattel mortgage.
Firstly it is usually best to consider the non-tax matters:
- Why are you purchasing the vehicle? For private or business usage.
- How long are you intending to keep the car (get a new car every 3-4 years or keep it until end of its useful life)?
- How much do you want to spend?
Factors to consider for financing:
- What is your cash flow position and what option would suit best?
- If financing the vehicle, are you required to pay a deposit and what are your monthly payments?
- What option is best if you are financing a vehicle? Is their a difference?
- Finance Lease / Hire Purchase – Under these arrangements the finance company is the owner of the vehicle until the residual payment is made at the end of the term.
- Asset Purchase Loan / Chattel Mortgage – Under a Chattel Mortgage agreement, the client will immediately become the legal owner of the asset.
- From a tax perspective the lease payments are deductible under a Finance Lease if the vehicle is under the luxury car limit, else it is treated in a similar way to a Hire Purchase or Chattel mortgage, where by depreciation and interest are claimed.
- It generally does not matter what option of finance is used in selecting from a Finance Lease, Hire Purchase or Chattel Mortgage. Whatever product is offering the best rate and options is usually acceptable.
- You are able to claim a tax deduction for the business portion of the running costs of the vehicle as well as the lease payments or depreciation and interest costs. (Please remember you will need to keep a log book).
- Fringe Benefits Tax (FBT) may be applicable if your business owns the vehicle and there is a private portion of use.
- If you are registered for GST you are generally entitled to claim a credit for GST included in the price of the vehicle.
- Luxury cars:
- The car limit for depreciation of luxury cars is $57,581 (2016-17)
- The limit of GST able to be claimed on a luxury car is $5,234
- Luxury car tax is not able to be claimed back.
- If you are an eligible small business with a turnover of less than $2 million, and the vehicle you acquire is at a price of $20,000 or less (excluding GST) and it is acquired prior to 30 June 2017, your business may be eligible to claim the entire purchase price of the vehicle under the accelerated depreciation scheme.
BLG Business Advisers can help you understand the best options for your individual situation. Get in touch with us online or by calling (02) 4229 2211 to find out more.