You may have heard you can get behind the wheel of a new car in Australia by buying it through your work or gaining a “company car.” You may have heard about this second or third hand, and that you can save on tax and running expenses. Though there are avenues towards buying a car through your work or as a registered business, there are several steps you need to take before you take the plunge.
Here, we outline the steps and options you can take to get a new car as a work vehicle either as an owner or as part of a lease agreement.
First steps and questions
The first questions you need to ask is whether the car will be used primarily (50% or more) for business use. If the car purchase includes GST, whether you will be able to claim it depends on who the car is registered to. If it’s registered to your company, they’d be eligible to claim the expenses, depreciation, GST credit and interest costs as it relates to business use.
If you register it under your personal name or ABN, you can claim tax deductions on the expenses you incur when using your car for business. You’ll need to maintain a logbook (either on paper or using an accredited app) for at least 12 consecutive weeks. You can also use the cents-per-kilometre method. If you’re unsure, ask your accountant.
Fringe benefits tax and deductions
If your employer purchases the car and grants exclusive use to you, they may have to pay 49% Fringe Benefits Tax for the personal use portion of the car, on top of income tax. This may end up costing you or the company more in tax. However, there is another method of reducing tax and gaining use of a “company car.”
Novated leasing – the best option?
Novated leasing is when your company, a lender, and an employee all agree to pay for a car over a set period. This lease will be included as part of your salary package. Your employee’s repayments are taken care of by the company, and the money is taken out of their pre-tax pay. The car is what the Australian Tax Office calls a “Fringe Benefit” and subject to Fringe Benefits Tax.
In a novated lease, any FBT your company usually has to pay is cancelled out by contributing to the upkeep and maintenance on the car using the Employee Contribution Method. This means both entities save on tax. Your pre-tax pay is reduced enough to bump you down into a lower tax bracket which means you take home more pay or get a larger tax return. Much like the company car scenario, an employee will need to maintain a logbook. Similar to a lease, the employee will be expected to keep the car in good condition and below a nominated kilometre threshold.
Leasing is not ownership – aspects to consider
As the name suggests, leasing is not outright ownership. At the end of the lease, you will need to pay a residual value payment. This is a portion of the car’s price left over for immediate payment at the end of a lease. At this point you can sell the car and lease another car or pay out the residual yourself and keep the car. Many private buyers pay top dollar for ex-novated lease vehicles as they need to be maintained well and stay below a certain mileage as part of the novated leasing agreement.
If you’re unsure about setting up a novated lease, a broker can help.