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Think twice about buying that BMW

Many small business owners seek to buy a prestige vehicle as a reward for their hard work and to show that they have been successful.

Buying a motor vehicle in your business name can be effective but only if you can demonstrate a high level of business usage for that vehicle. All of the private usage of the vehicle will need to be reimbursed by the user of the vehicle, or taxed at the highest rate of personal tax via the fringe benefits tax system. Reimbursements made to a business for private use are often over $15,000 per annum as all of the costs (including depreciation, registration and interest) need to be reimbursed, not just the running costs. You should also note that “business use” excludes the journey from your home to the normal place of work and back again, making it very difficult to produce a log book with 100% business use.

In addition, depreciation deductions for cars are limited to a maximum cost of $57,466. This means that no tax deduction will be allowed for part of the depreciation or lease expense for high value vehicles, even if business use can be demonstrated. An alternative may be to keep the vehicle in your name and claim motor vehicle costs using the cents per kilometre method in your personal return.

Note that work vehicles, vans and 1 tonne utilities, have exemptions from the fringe benefits and substantiation rules. These will be more tax effective than passenger vehicles.

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