Business Motor Vehicles - common questions and Issues

Posted by Natalia Atapina on Mar 14, 2019 2:38:13 PM

In deductions, small business, tax planning, Compliance

Car Financing

The most common questions we receive from clients in regard to purchasing a vehicle for their business are:

  • How should I finance the car purchase? and
  • What deductions will I receive for purchasing a vehicle?

The following are some of the financing options available and some of the issues you need to consider when purchasing a motor vehicle:

MV Finance Options

Note 1. In certain circumstances you can claim a GST credit for the full amount of GST included in the price of a car even if the car costs more than the car limit. For example, the car must be used in carrying on your business and it is a commercial vehicle that is not designed for the principal purpose of carrying passengers.
Note 2.  Small business entities using simplified depreciation rules can write off asses costing less than $20,000 from 12 May 2015. From 29 January 2019 the write off amount may increase to $25,000 (subject to bill passing the House of Representatives and the Senate).

In order to pick an optimal financing option for the motor vehicle purchase, business circumstances need to be looked to determine its ability to make payment/s. Hire purchase is an option suitable for businesses with sporadic cashflow. Buying the vehicle outright could be an option for businesses with a large cash reserve. Businesses with sporadic cashflow who cannot afford a long-term loan can choose to lease a motor vehicle.

Logbook

Each employee using a company-provided motor vehicle for work travel must keep a logbook during the income tax year for at least 12 continuous weeks. That 12-week period needs to be representative of your travel throughout the year.

If you started to use your car for business purposes less than 12 weeks before the end of the income year, you can continue to keep a logbook into the next year so it covers the required 12 weeks.

Each logbook you keep is valid for five years, but you may start a new logbook at any time.

If you establish your business-use percentage using a logbook from an earlier year, you must keep that logbook and maintain odometer readings in the following years.

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What to record in your logbook

Each logbook you keep must contain the following information:

  • When the logbook period begins and ends
  • The car’s odometer readings at the start and end of the logbook period
  • The total number of kilometres the car travelled during the logbook period
  • The business-use percentage for the logbook period
  • The number of kilometres travelled for each journey recorded in the logbook (if you made two or more journeys in a row on the same day, you can record them as a single journey). You will need to record the: 
    • Start and finishing dates of the journey
    • Odometer readings at the start and end of the journey
    • Kilometres travelled
    • Reason for the journey.
  • The odometer readings at the start and end of each income year you use the logbook method.

Motor Vehicle Expenses

Record keeping is an important part of bookkeeping and when expenses are being input into Xero, the transaction should have a clear description and the vehicle the expense is attributed to. The expenses (such as fuel, registration and insurance) will then be easily identifiable for each vehicle and all information is readily available in Xero/MYOB/Quickbooks.

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