Luxury Vehicles and Their Forgotten Costs

Have you had your eye on a Tesla for a while or perhaps an SUV to fit the kids and everything that comes with them in the boot? Thinking of pulling the trigger this year? Do you operate through a company or trust structure? Are you looking for a tax write off? If you’ve answered yes to the above questions, then here’s some considerations you need to know before making that new purchase.

Things to consider before purchasing a luxury car

• Tax deductions to claim – most commonly cost of ownership (depreciation) and running costs (fuel, registration, insurance, maintenance etc.)
• Depreciation to claim
• GST to claim
• FBT to pay

Depreciation and GST

There seems to be a common misconception of late that the temporary full expensing provisions are applicable to all cars – and whilst in some very specific cases they are – for the most part they are not.

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The ATO provides guidance on the maximum amount of depreciation claimable on your new car and subsequently determines the maximum allowable GST claim you are eligible for being 1/11^th of the depreciation limit. The depreciation limit is subject to adjustment to account for indexation; however, the table below provides a summary of current and past amounts:

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Let’s put that information into a practical example…

Lucy purchased a new car in the 2023 financial year at a GST inclusive cost of $110,000, assuming 100% business usage. If Lucy was unaware of the above limits, at first glance she would think to break down the above transaction as follows:

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However, with Lucy’s new found knowledge of the limits, she knows that the transaction should be treated as follows:

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The above results in a depreciation claim of $64,741 and GST claimable on your next activity statement of $5,885.55 ($64,741 divided by 11). 

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The example above highlights a common GST adjustment that we see when reconciling end of year accounts – clients have claimed a GST refund of $10,000 when they were only entitled to claim a GST refund of $5,885.55. This results in an amount of GST repayable to the ATO.

Record keeping requirements for vehicles

When operating through a company or trust structure, you are required to keep a logbook detailing your business use percentage of the vehicle and records of actual costs, e.g. fuel, tolls, registration, insurance, repairs etc.

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Your logbook needs to cover the following:

• Period of coverage of the logbook (12 weeks or more)
• Car odometer at start and end of logbook period
• Total kms travelled in logbook period
• Records of each journey including start and end odometer reading, reason for travel (business or private) and date of travel
• Odometer readings at start and end of each subsequent income year the logbook is valid for
• Business use percentage (calculated from the above items)
• Details of vehicle: make, model, engine capacity and registration number

Your logbook is then valid for a five year period on the basis that it remains representative of your ongoing travel. If the logbook is no longer representative of your current travel requirements, then you will need to complete a new logbook.

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The business percentage is then applied to the associated expenses to determine the tax deductions available.

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Fringe benefit tax for vehicles

Building from our recently published article which details the additional exemptions that you may be eligible for if you are considering purchasing either an electric or fuel-efficient vehicle, the below example shows the amount of FBT payable under the statutory method on a luxury vehicle.

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The Statutory Method

The statutory method calculates the amount of FBT payable at a flat rate of 20% of the original GST inclusive cost of the vehicle for the first four years of ownership. After four years the FBT payable is calculated on a reduced cost at the flat rate of 20%.

Drawing on the previous example of a car purchased for the GST inclusive amount of $110,000, FBT payable would be calculated as follows:

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The Operating Cost Method

The operating cost method, also known as the "logbook method," offers a different way for businesses to track the usage of their vehicles for work and private purposes. To implement this method, a business is required to maintain a logbook that documents the vehicle's usage over a period of 12 consecutive weeks.

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The logbook should include the following information for each trip:

1. Purpose: Clearly state the reason for undertaking each trip in the vehicle.
2. Distance: Record the number of kilometres travelled during each trip.
3. Work-related or private: Indicate whether the trip was for business/work-related purposes or for private/personal use.

Once completed, the logbook remains valid for a period of five years, assuming there are no significant changes in the business's pattern of vehicle usage. 

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We’re here to help

We strongly recommend that before purchasing your new vehicle, you speak with us first to get a full understanding of the GST, tax and FBT implications so you can proceed with all the necessary knowledge.

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