Car Leases...Tax-Effective?

JIT

JIT

Hi there,

For a business owner who uses a car for business purposes, is it worthwhile leasing a car to do this instead of purchasing one?

Eg. lease a new car for 5 years and the costs of the lease and running costs are all tax-deductible?

Rather than come up with say 50k-150k cash or borrowings to buy a new car outright?

And, every 5 years get a new car to lease? Nice!

Cars generally go down in value anyway, so it's not like if you buy and hold a car you're hanging on to an appreciating asset.

Is that what business folks do with cars?

I'm trying to see if it can be cost-effective for me to lease a new car as I don't like the idea of stumping 50k+ (cash or borrowed funds) for a new car (or even a used car for that matter).

Thanks for any posts, I'm pretty clueless on this topic.
 
If you buy it in the business then yes a lease is fine, if you get a car allowance from the business and you buy the car yourself hire purchase is better.


You will still need a log book either way.

All cost are claimable though the business including the gst
 
JIT, if your business is registered for GST it gets even better.

Use a chattel mortgage to finance the vehicle. Say your car cost is $55K incl GST. You get back $5K in cash in your very next BAS return. This (if you want) can fund 5 months of the car payments. (assumes payment of $1K pm)

If you arrange to have say a 30% baloon payment at the end of say a 4 year finance period, you'd normally expect the car to be worth 30% of the purchase price (this depends on the manufacturer & model etc) at this time. Sell the car, payout the loan and do it all again.

And of course with companies, payments come out of expenses before tax - so good all around.
 
Or just buy some old clanger for 3K and put the remainder into something useful instead of swanning about. Noice !!!
 
Propertunity said:
Use a chattel mortgage to finance the vehicle. Say your car cost is $55K incl GST. You get back $5K in cash in your very next BAS return. This (if you want) can fund 5 months of the car payments. (assumes payment of $1K pm)
Click to expand...


I think you can only claim GST in relation to the % of busienss use? i.e. 50% busienss use = $2500 refund
 
You can get around FBT by making an 'employee contribution' to the company for the private use component of the car's cost. There is therefore no fringe benefit to tax. This effectively lowers the FBT rate back to the employee's PAYG tax rate. You need to get specific accounting advice but there are very tax effective ways of doing this.
 
18 months ago we decided that it was more tax effective to use a chattel mortgage to finance a vehicle for our business. Up until that point we had always owned our vehicles (no finance) in our personal names and claimed business usage.

As Prop indicated, getting the GST back in our next BAS return was a nice sweetener. The GST refund covered 6 months of car payments in our situation. The other bonus for us was that we freed up our personal capital by selling our personal car and were able to use those funds to invest.

Cheers
Buddybee
 
TPFKAD said:
Or just buy some old clanger for 3K and put the remainder into something useful instead of swanning about. Noice !!!
Click to expand...

i agree and i see the entire lease option as an offer on another do-dad, call it a lease but its still financing a devaluing asset, if you think you can afford the lease why not save the $$$ instead, its not like gearing up a car will work in your best financial interests.
I have plenty of aquaintences that " swan " around in new auto,s and i think they believe they actually own them? untill they go and upgrade.
if you don't have actual cash for the final pay out then your stuck in getting the next one.
I feel sorry for the young show ponys. new 40k utes and living at home with mum or renting, they don't know any better.It gives them a fulse sence of ownership, and they forget untill next month they dont own jack s**t. three years barly getting what the difference is on the price??/
 
Rolf Latham said:
One of ours is a dual cab ute and is thus exempt, but another one ofours attracts around 4 k pa for a 45 k car

ta
rolf
Click to expand...

Not fully exempt from FBT, possibly exempts home-work travel from FBT.

No other private use exempt unless minor and infrequent.

Just need to point this out for others ...

Cheers,

Rob
 
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JIT said:
Eg. lease a new car for 5 years and the costs of the lease and running costs are all tax-deductible?
Click to expand...

Leasing can be very good from a cash flow viewpoint.

Genuine leases usually allow all payments as a tax deduction - except in the case of luxury cars.

Income Tax can be quite generous if you purchase the car for residual value and then eventually dispose of for a profit and is not otherwise deemed income.

Cheers,

Rob
 
Operating Leases for Cars (Mercedes)

Noticed a few ads recently by Mercedes that they are introducing operating leases. No upfront payment, no balloon payment, not sure what are the restrictions about kilometers, servicing etc but an interesting option for some
 
You can avoid the FBT issue (it doesn't avoid the cost obviously) by keeping a log book for 12 weeks and apportioning private use vs business use. You then use the business use % to apportion deductions for all costs. Obviously there is no tax deductibility on the private portion.

My accountant recommends this to avoid the hassle of having to deal with FBT.
 
Thanks for the replies, but still a bit confused here!

My next question is what type of leasing arrangement?

Eg. if as a business owner I want to lease a Merc for business purposes for 5 years, and at the end of the 5 years just hand the car back, ie. I don't really want to own it (though not sure if this is the right way to go here?), but want to get a new car at the end of the 5 years.

Which of the following is the most cost and tax-effective for me?

Finance Lease (aka...Car Lease/Auto Lease/Vehicle Lease/Asset Lease)
Commercial Hire Purchase
Chattel Mortgage
Novated Car Lease
Maintained Novated Lease
Novated Operating Lease

And here's a Merc ''Operating Lease":

http://www2.mercedes-benz.com.au/co.../new_cars/rep_finance_lease/rep_clkclass.html

Thanks.
 
Last edited:
Propertunity said:
JIT, if your business is registered for GST it gets even better.

Use a chattel mortgage to finance the vehicle. Say your car cost is $55K incl GST. You get back $5K in cash in your very next BAS return. This (if you want) can fund 5 months of the car payments. (assumes payment of $1K pm)

If you arrange to have say a 30% baloon payment at the end of say a 4 year finance period, you'd normally expect the car to be worth 30% of the purchase price (this depends on the manufacturer & model etc) at this time. Sell the car, payout the loan and do it all again.

And of course with companies, payments come out of expenses before tax - so good all around.
Click to expand...

Thanks.

With the chattel mortgage, can you also claim depreciation of the car over the four years?

So you claim eg. $1k per month for the interest payments as well as this ''non-cash'' deduction...not sure how you work out how much it may be though...?55k divided by 4?

That's a lot of tax deductions!

I wonder what the after-tax cost of holding a car in this way may be?

Could you be cash-flow positive after tax???!!!

Damn this $hit is interesting!

How is a chattel mortgage different from a commercial hire purchase?

Is it basically the same thing except chattel is better if you use the cash method of accounting and commercial hire purchase is better if you use the accruals method of accounting (in order to claim GST back as a lump sum at next BAS)?

What are the implications of buying a car over the ''luxury tax'' limit thing, eg. for 70k?
 
But with chattel mortgage (loan secured against the car) and hire purchase, you cannot deduct so much of the repayments that represent capital. You only deduct the "interest" component of the payment to the Financier. And you get a deduction over time for depreciation being the holder.

With a lease that is effective for tax purposes, you get to deduct the whole lease payment when made/due, and no depreciation claimed since you are not the holder.

Some leases are more expensive because the financier retains liability for maintaining and replacing the car - usually for fleet operators who cannot be bothered.

Novated leases often occur where the "lessor" is really only a finance company and arranges the asset to be supplied by somebody else.

NOTE a mercedes "operating lease" may be regarded as hire purchase for tax purposes if it is a luxury car.

You need to talk to your Accountant about how you finance your business, (s)he will be familiar with your situation.

Cheers,

Rob
 
There are also differences in how GST can be claimed.

Operating Lease
No matter if you're on Cash or Accrual for GST purposes, you can only claim a portion of the GST with each lease payment.

Chattel Mortgage/Hire Purchase
Cash - A portion of the GST with each payment
Accruals - The entire amount upfront

Finance Lease / Loan
No matter if you're on cash or accruals, it's the whole amount upfront.

As Rob said, see an accountant. The best form of leasing arrange for your sitation will depend on a lot factors and how they interoperate.
 
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