The working lives of many small business owners depend on a good set of wheels. After all, any given day may see you darting between meetings with clients, suppliers and financial advisors, before returning to home base in your retail, hospitality or professional services space.
But what exactly do you need to know when it comes to small business vehicle ownership? And how can you ensure this sizeable investment is as tax efficient as possible? We asked Michelle Maynard, Partner at Carbon Group Accounting, to answer these very questions.
Know what costs to claim
A significant benefit of owning a business vehicle is the cost savings from tax deductions. This is broken down into two parts: the deduction for the ownership of the vehicle, and the deductions for costs incurred while driving the vehicle for business purposes.
“Having a car that you use for business allows you to claim a percentage of all general running costs –things like fuel and oil, repairs and maintenance, as well as insurance, registration and depreciation,” says Maynard.
“Normally, those are all private expenses, but if it’s a business vehicle, you can push those claims to ultimately lower the income of the business, and therefore minimise the tax payable.”
It’s also worth mentioning the recent change to the instant asset write-off scheme, which saw the threshold increase from $20,000 to $30,000. This means a new business vehicle could now be a viable work investment for many small business owners. Of course, you’ll need to carefully determine the percentage of time the vehicle is used for business vs personal use and claim that figure specifically, not the full $30,000, explains Maynard.
“Say, for instance, you calculated the vehicle is being used 10% of the time for work, then you would only be able to claim $3000 of the full $30,000 cost.”
Work within your business structure
The best way to track that all-important business vs personal use percentage depends on your business structure too.
“If you’re a sole trader or a partnership, there are two methods you can use to claim the car within your business,” says Maynard.
“There’s the cents per kilometre method, which basically allows you to claim a maximum of 5000 business kilometres at 68 cents per kilometre.
“Then there’s the logbook method, which sees you clock each trip for a total of 12 weeks, then calculate your business percentage of that total figure. You also need to keep all your receipts and expenditure in relation to the car, and then claim the business portion of those expenses.”
If you’re operating as a company or trust, the logbook method is, in fact, your only option.
“If a company or trust owns a vehicle that’s supplied to their employees, directors or associates, they might have to pay an additional tax known as fringe benefits,” adds Maynard.
“In those cases, we recommend the company not owning the car, but rather the individual employee and pushing some of the running costs through the company. It’s an issue that doesn’t apply to sole traders or partnerships, but one we can help to resolve for companies in this way.”
Streamline your record-keeping
While the logbook method certainly requires more work, you’re only required to do it once every five years, and Maynard says you’ll typically receive a better deduction from this approach. One way to streamline the process is to use an app that tracks all trips, stores receipts and links to your accounting software.
“It all comes down to stringent record-keeping, and there are many apps that make it as easy as possible,” says Maynard.
“When you’re on the road, and you stop to refuel, take a picture of the receipt, and it will upload straight to your accounting software. If you don’t use an accounting program, save it to the cloud instead.
“While the law requires you to keep all receipts, you don’t have to keep a physical copy, so we find this tactic to be hugely beneficial to our clients.
“Each time you get the car serviced, buy new windscreen wipers or whatever you need to do, if you get into the habit of keeping those records, it makes the whole process much easier.”
Whatever method you choose, remember the more records you keep, the better position your accountant will be in when it’s time to make your business vehicle work for you at tax time.
Would a new set of wheels be a dream come true for your small business? Need a bit of financial help first? Get in touch with Prospa about how a small business loan could help – you could be on the road in no time.
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