When it comes to running a business in Australia, vehicles are often an essential part of operations.
Whether you’re driving a trusty ute, a van, or a heavy-duty truck, understanding how to manage tax deductions related to these assets is crucial.
Are you maximising your deductions or risking costly errors?
Let’s dive into how commercial vehicle owners can better navigate the tax landscape to benefit their businesses.
Types of Business Vehicles And Their Tax Implications
The kind of commercial vehicle you are using matters greatly for tax purposes. Here are the general categories of business vehicles and their assumptions:
- Light Commercial Vehicles: Utes, vans, and small trucks (that is, trucks under 4.5 tonnes) are normally used for the transportation of goods, equipment, or tools. Because of possible inclusions, it is widely believed that these vehicles can allow for wider deductions.
- Heavy Commercial Vehicles: Trucks over 4.5 tonnes are found to be used in freight and logistics, which allows for deductions of all fuel, maintenance, or any operating costs incurred.
- Business Passenger Vehicles: Cars and sedans which represent the frequent transport of clients or employees have specific logbook and participation percentage requirements.
- Specialist Vehicles: Such vehicles including tractors, bulldozers, or cranes can be claimed for the deduction based on their specific use within the industry.
- Fleet Vehicles: Managing a fleet requires strict record management, but management may allow general fleet tax benefits.
- Rental Vehicles: In case you require a vehicle for some business needs, it still allows the deductible, as long as you keep track of its use.
Methods For Claiming Vehicle Deductions
This method takes into account all costs associated with business use of the vehicle. These include:
Actual Costs Method
This approach involves recording all business-related expenses, such as:
- Fuel and oil
- Repairs and maintenance
- Insurance and registration fees
- Loan interest or lease payments
- Depreciation
To make an accurate claim, you’ll have to keep a logbook showing the percentage of business use. For example, if your vehicle had 70% business usage, you could claim that percentage of direct costs, i.e., up to 70% of some categories of expenses.
Cents Per Kilometre Method
This method provides one with a fairly straightforward way of claiming a fixed rate for each business kilometer driven. This works with business kilometers at a fixed rate of 85 cents for the 2023-24 income year; with a cap of 5,000 kilometers annually, it is better suited for small and medium enterprises with smaller vehicle usage.
Key Considerations In Order To Maximise Your Tax Deductions
Depreciation Deductions
Vehicle depreciation must be carried over in the diminishing value or prime cost method of depreciation, depending on your financial game plan.
Fuel Tax Credits (FTC)
Heavy vehicle operations are such that FTCs deduct from fuel expenditure, which reduces the tax burden for remote operations.
Instant Asset Write-Off
Provided they qualify and are below the monetary threshold for eligible vehicles, they can be claimed and deducted immediately. Current thresholds by ATO must be checked for compliance.
Leasing Benefits
Leasing, as opposed to full purchases, often allows for bigger deductible expenses. Determine which leasing option best suits your business.
Employee Contributions
For all personal use done in the business motor vehicle, enacting contribution for the employee may mitigate the FBT impacts.
Understanding Fringe Benefits Tax Implications
When a vehicle is available for private use, owners must consider the implications of Fringe Benefits Tax (FBT). FBT exemptions may apply to certain vehicles, including some vehicles designed for carrying loads instead of passengers.
Introducing employee contribution arrangements might mitigate FBT liabilities while retaining vehicle access as a benefit for staff members.
Key Considerations Before Claiming Deductions
- Renting vs. motor vehicle purchase: Tax advantages can accrue when a vehicle is leased and used strictly for business purposes. Payments toward the leasing can usually be fully deductible.
- Fuel Tax Credits: If you are in business and are making long driving trips, then you should consider FTCs on offsetting fuel excise or customs duty. Consult your accountant on what qualifies and the record-keeping needs of it.
- Dealer Contributions for Personal Use: Disallowing employees to use company cars for personal purposes can result in fringe benefits tax liabilities. Setting up a dealer contribution scheme can counter this liability.
- Know about FBT provisions: Generally, a vehicle, if used mostly for business, shall not be chargeable to FBT. However, the mixed use of a company car can lead to FBT obligations as stated above; therefore, it is necessary to comply with them.
Record-Keeping Requirements
The ATO mandates specific record-keeping requirements for vehicle-related tax deductions. Essential documents include purchase or lease agreements, loan documents, fuel receipts, maintenance invoices, insurance papers, and registration certificates.
For the Actual Costs method, your logbook must contain the date of travel, odometer readings, journey purposes, and total kilometres travelled.
Professional Guidance and Compliance
The tax rules regarding commercial vehicles are not static and are regularly modified according to the changes in deduction rates and threshold amounts. The employment of a knowledgeable tax accountant can guarantee tax compliance and maximisation of legitimate deductions. They can and will offer tailored advice based upon your specific business situation or occasion and will assist in identifying often overlooked opportunities for deductions.
Tax professionals can also assist with the optimal structuring of vehicle acquisitions: outright purchase, finance lease, or operating lease. Each of these options has its own tax implications, all of which could greatly impact one’s particular business’ financial position.
Want to maximise your commercial vehicle tax deductions? The expert team at Leading Tax Experts has the experience necessary to help business owners in claiming every deduction they deserve.