Buying A Vehicle Through Your Business

If you’re a new or established business and you’re thinking about financing a car or vehicle for the business, you may have an inkling that there’s more to it than approach dealer, buy car, and get finance after the fact. With anything business related, the government will want its share of tax and revenue – and buying cars are big business in Australia. $15.3 billion worth of car finance was taken out in 2023, according to the ABS.

So what do you need to know before making the plunge and buying a car in your business’ name? Here’s what you should know, and perhaps some alternatives to consider.

What business purposes means

According to the ATO, using a vehicle for business purposes means using it for business more than 50% of the time. Though you may use your car on the weekends for going shopping, visiting friends, or going out in general, these are not business purposes and cannot be claimed as part of any tax deduction, including the GST on the purchase price of the vehicle. There is a limit to how much you can claim, which you can see here.

What you can deduct or claim from the tax office

You can deduct a lot of expenses – when spent on business purposes – when it comes to your car. You can claim the fuel or electricity used, interest on the vehicle loan or lease payments, insurance, registration, repairs or maintenance, tolls (in some cases), and depreciation. You will need to keep records of these using a logbook or app that’s approved by the ATO. Otherwise, you can use the cents per kilometre method if you don’t want to use a logbook or don’t use your car for business purposes all that often. Depreciation is calculated either directly through cents per kilometre or in your logbook, not both.

Chattel mortgages or hire purchase

If you choose to finance a car through your business, it opens up the possibility of gaining business asset finance; chattel mortgages or hire purchases. Both are functionally the same – getting finance and paying it off until you reach a zero balance – except both have features that consumer car loans don’t share. The main one being borrowing 100% of the purchase price or greater to ensure a cash flow neutral purchase. Your business can also opt for longer loan terms and balloon payments to defer some of the regular repayment costs until the end of the loan.

The main difference between the two is where the asset ends up on the books; as fully owned, or hired from the finance company, which classes it as an operating expense. This suits off-balance sheet accounting methods better. In any case, you should approach a car loan broker or asset finance broker to drive home a deal – someone with experience in dealing with business asset finance.

Leasing options

Businesses can also opt to lease their cars or vehicles for greater flexibility. For instance, you can opt for a finance lease in which you make tax deductible repayments to a financier or lease operator with an option to buy the car outright at the end of the lease when the term is up. Or you can take out an operating lease and hand back the car at the end of the lease term. In a lease agreement, most insurance, registration, maintenance, and repair expenses are borne by the lease company. However, you may need to work within restrictions on mileage and condition in order to hand back any car at the end of a lease. If you’re ever unsure, talk to your financial adviser or accountant first.