The essential guide for business vehicles

Australian business owners frequently enquire about business vehicles. In this guide, we’ll explore some key questions around this topic: from business vehicle leasing vs buying, business vs private use, deducting vehicle expenses for business to record keeping.​

When it comes to business vehicle leasing vs buying, there are different cash flow and tax effects to think about. ​

Leasing a business vehicle means you pay a set amount each month, and you don't have to pay a big sum upfront. These monthly payments can usually be fully deducted as business expenses, which can lower your taxes at the end of the financial year. It’s a good option if your business doesn't have a lot of cash on hand or if you don't want to deal with owning a vehicle. It’s worth noting that you should check your contract carefully because you’re usually tied in for a set period of time and they’re difficult to break if your situation changes.  ​

On the other hand, buying a business vehicle means you own it, and its value can be included as part of your business assets. You can also deduct the cost of the vehicle (based on the business use) losing value over time from your taxable income (this is called depreciation and may be tax deductible). However, buying requires a larger upfront investment. Another plus side is that because you own the vehicle you can choose to sell it and receive money back whenever you want to - you’re in complete control.​

The choice between leasing and buying a vehicle depends on your business's financial situation, how much you drive, and what your plans are for the future. If you’re not sure which option you should choose, it’s best to consult your accountant and understand the tax implications. If you’re not working with an accountant, book a call with us to discuss your accounting.​

Depreciation is a way of spreading out the cost of a business vehicle over its useful life. For example, if you buy a van for your business, you can't claim the entire cost as a tax deduction in the year you bought it. Instead, you claim a portion of the cost each year, reflecting the van's decrease in value. The specific amount you can claim each year depends on the type of vehicle, the cost of the vehicle, and the depreciation method* you use.​

To calculate how much you can claim as tax deduction, get in touch with your accountant. ​

*There are 2 ways to calculate depreciation: diminishing value (DV) and straight line (SL).​

Using a vehicle for both business and private purposes has specific tax implications. If you use your vehicle solely for business, you can claim the full running costs (e.g., fuel, insurance, depreciation etc) as a business expense. ​

However, if you use it for both business and personal purposes, the situation becomes more complex and you need to allocate costs correctly. For instance, if a vehicle is used 70% for business and 30% for private use, only 70% of the total expenses can be deducted. You may also be liable for fringe benefit tax (FBT) if the vehicle is owned by a company and you provide a vehicle for private use.​

If you provide a company vehicle to your employees for private use, you may be liable for Fringe Benefit Tax (FBT). This is a tax on the benefit your employees receive from using the vehicle for non-work purposes. The amount of FBT you pay depends on factors like the vehicle's value and how much it's used privately. ​

There are 2 ways to calculate FBT: the operating cost method or the statutory rate method. ​

It's important to note that if you use the vehicle yourself for private purposes, you may also be liable for FBT on that portion of use.​

Read more: what is fringe benefit tax?​

If your business is registered for GST, you can claim back the GST paid on purchasing vehicles (subject to certain limits). To determine the amount to claim, estimate the proportion of business vs personal use of the vehicle.  It’s important to note that if you operate through a company, and you are registered for FBT, then you may be able to claim 100% of the GST subject to certain limits.​

If you are unsure about how GST works or how to calculate how much GST you need to pay/claim back, use our handy GST calculator for Australian business owners or contact your accountant. ​

Read more: The basics business owners need to know about GST​

You can choose to use either the logbook method or the actual costs method to calculate your motor vehicle expenses. For vehicles used exclusively for business, the process is straightforward – all expenses could be tax deductible. However, there will be more complexities if your vehicle is mixed-used. Talk to your accountant if you are not sure which method to choose or how to calculate your motor vehicle expenses. If you don't have an accountant or are thinking about switching to a new one, book a call today.​

Read more: What motor vehicle expenses can I claim for my business?​

Accurate record-keeping ensures your compliance with tax regulations, it also helps in maximising tax deductions and maintaining clarity. ​

In Australia depending on your operating structure, there are 3 primary methods for vehicle record-keeping:​

If you want to know more about record keeping, contact your accountant or head to ATO’s website to check out their guide on motor vehicle record keeping.​

We’re an online business accounting firm with a team of highly experienced accountants and client support staff.​

Our accounting package covers year-end compliance, with one fixed cost split over 12 months. This includes end-of-year financial statements and tax returns, tax minimisation, filing and payment reminders, and unlimited support for day-to-day queries.​​

We also provide additional services like any accountant - bookkeeping, BAS returns, payroll, budgets, cash flow forecasts, advisory and more.​

Beany also services businesses in New Zealand and the UK with local teams in each region.​