The purchase of a new car, whether it be brand new or “new to you,” can be a very exciting time. However even before you get to drive the car away, have you considered the tax consequences?
These days, cars are a necessity for most people. Whether it be a passion or simply a means of getting from A to B, cars feature as a regular part of our day to day lives. In 2018, over 1.1 million new cars were sold in Australia, or approximately one for every 20 Australians. Yet, despite this, cars remain one of the most complicated areas of tax, whether it be for businesses or employees.
The purchase of a new car (whether it be brand new or “new to you”) can be a very exciting time, however even before you get to drive the car away consideration of the tax consequences may been to be made. The finance options for the car and tax consequences of your trade-in can be important factors that may influence the purchase. For employees, consideration whether to salary sacrifice (particularly with novated leasing options being heavily marketed currently) or buy personally can provide significantly different tax outcomes when purchasing a car. For businesses, GST, depreciation, FBT, log books and the impact on cash flow may all require consideration when purchasing a new car.
During the ownership of a car, there can be a number of factors to consider for tax. For employees, there is the potential to claim a deduction for work related car use and the options available to calculate the deduction. For businesses, ongoing reviews of FBT, log books, GST claiming and fuel tax credits may be required to ensure compliance with the relevant tax legislation and to gain the greatest tax efficiencies within these rules.
To help with these issues, we suggest as a minimum checking in with your Perks adviser whenever you are looking to buy or sell a car to avoid any unexpected tax consequences occurring after the event. A regular review of the tax treatment of your car/s may also be worthwhile and the preparation of annual financial statements or tax return can be a great opportunity for this.