How to Purchase a Car Through a Business?
- johnry8
- 6 days ago
- 3 min read
Buying a car through your business can offer tax advantages and practical benefits. Here are the main factors to consider so you make a well informed choice.
1. Understand How the Car Will Be Used
If there’s any private use, you may need to account for fringe benefits tax (FBT), unless the vehicle is exempt (such as certain utes and vans used mainly for work).
The ATO looks closely at:
Whether the car is for work use
How much personal use there will be
Whether the vehicle type is suitable for business use
Understanding business car use rules is essential, especially since any personal driving may trigger FBT obligations unless the vehicle qualifies for an exemption.
2. Know the Tax Options Available
Buying a car through your business gives you possible deduction options, depending on the method you use. Understanding your options helps you maximise car deductions in Australia when doing your tax return.
Instant Asset Write-Off/Temporary Full Expensing
These options come and go depending on legislation, so always check the current rules before buying. In some cases, you may be able to use the instant asset write-off rule to claim a large portion of the vehicle cost upfront.
Depreciation (Car Limit)
If instant write-offs aren’t available, you may be able to claim business car depreciation. The ATO sets a car limit each year, which caps the amount you can claim regardless of the vehicle’s full purchase price.
Running Costs
Fuel, servicing, insurance, registration and repairs may be deductible based on business use.
3. Choose the Right Finance Option
Your choice of finance affects cash flow, tax, and ownership, so it’s important to compare the most suitable business vehicle finance options before committing. Many businesses also consider a chattel mortgage car arrangement, as it can offer deductible interest and depreciation benefits.
Chattel mortgage: Common for businesses. Interest and depreciation may be deductible.
Lease: Payments may be deductible depending on business use.
Cash purchase: Simple, but ties up funds.
Each option has different GST outcomes, so check this before you sign anything.
4. Keep Records From Day One
Accurate car logbook documentation is essential because it proves your business use percentage and supports the deductions you’re trying to claim. Maintaining clear business kilometre records from the start also protects you if the ATO reviews your claims.
Make sure you keep:
Logbook records if you’re using the logbook method
Odometer readings for the year
All purchase documents
All running cost receipts
A valid logbook lasts for five years, so completing it correctly from the start is so important.
5. Consider Fringe Benefits Tax (FBT)
Understanding FBT car rules is crucial, as FBT can apply if a vehicle is available for private use, even when private use is minor. Many business owners overlook this, which can lead to unexpected tax costs.
There are two common methods:
Statutory formula
Operating cost method
FBT can be costly, so it’s important to check whether the car is FBT-exempt or whether another vehicle type would suit you better.
6. Check GST Entitlements
Understanding how GST on business vehicles works is essential, as your GST credit may be limited by the GST car limit even if your business is fully registered for GST.
GST applies differently depending on whether you:
Lease
Use a chattel mortgage
Buy outright
Always confirm the GST treatment before finalising the finance method or vehicle purchase, as it can significantly affect cash flow and deductions.
7. Think Long Term: Resale and Running Costs
Choosing the right vehicle can significantly reduce business car running costs over time, especially when you factor in fuel efficiency, servicing and insurance. Many owners also compare car models to find the best car for small businesses to ensure strong long term value and lower ongoing expenses.
Consider:
Fuel efficiency
Servicing intervals
Resale value
Insurance costs
A well chosen vehicle can lower your ongoing expenses and improve overall value.
Thinking About Buying a Car Through Your Business?
Choosing the right structure and tax approach can save you money and prevent costly mistakes. If you’re considering purchasing a car for your business and want to understand the tax impact, FBT exposure or best finance option, Rise Accountants can guide you through the decision with personalised and practical advice.
Feel free to reach out if you’d like help reviewing your options.