Car finance – why it pays to pick your vehicle with care

Thinking of buying a new car for your business? Your fresh set of wheels could also drive a handy tax break, but it’s an area where it pays to toe the Tax Office line.  

Businesses with annual turnover up to $5 billion, are usually entitled to write off the full value of any eligible asset purchased for the business until June 2023.¹

It’s a tax break known as temporary full expensing (TFE). And it’s great news for small and medium enterprises (SMEs), who may be able to enjoy a tax break today while investing in new equipment for future growth. 

But there is a catch that business owners should be aware of when it comes to new vehicles.

The Tax Office treats cars slightly differently to other items of plant and equipment. In particular, cars don’t share the same unlimited price threshold under TFE. If you’re thinking of buying a Lamborghini or Porsche for the business, you could be caught short.

That’s because a car limit applies to passenger vehicles, and the limit for the current (2021/22) income year is $60,733.²

Back to the family sedan, right?

Only business use can be claimed

The instant asset write-off is also limited to the business portion of the car’s purchase price³. 

Let’s say that you buy a car costing $45,000 for the business. But you only use it for business purposes 75% of the time. The remaining 25% sees the car used to ferry kids to Saturday sport or taking the family on road trips. This means, the total you can claim under the instant asset write-off is 75% of $45,000, which equals $33,750.

In addition, the tax man defines ‘passenger vehicles’ as being designed to carry less than one tonne and fewer than nine passengers.⁴ So if the family is happy being driven around in, say, a one tonne ute, you may be able to claim a higher purchase price – though still bearing in mind the rules around private use.

It is always important to speak to your accountant before you decide on your next choice of vehicle.

Mortgage Choice can help with competitive vehicle finance

It also makes sense to get some expert advice on how to finance your new vehicle. Be especially wary of car yard finance offering very low interest rates to ABN holders. These deals may sound sweet, but read the fine print and you could find there is a substantial ‘balloon’ payment remaining at the end of the finance term.

We can help you find the commercial finance that’s best suited to your business. It’s a big time and money saver, and it lets you focus on running your business, while we do the legwork tracking down a great deal. 

Mortgage Choice even has a free car-buying service that helps you get the best price on your new car from dealers around the country.