Cash flow positive business cars!!!

Hi there,

Following on from this thread:

http://www.somersoft.com/forums/showthread.php?t=51916

My car game plan now is to get a variable interest only loan secured againt surplus RIP equity to purchase a car for business use (90% business use, 10% private use).

As I have an ABN, I am eligible for the 50% investment allowance (which finishes in Dec this year).

I'll buy a new car (or demo model...needed to use the 50% allowance), ideally under the $57,180 luxury car tax threshold (to maximise the benefit of the 50% allowance), but it will probably be a little bit over this eg. 60-62k for what I am looking at.

With the 50% investment allowance on top of normal depreciation, tax deductible interest payments and vehicle maintenance/running expenses, GST refund on first BAS, surplus cash being used to pay non-deductible debts eg. PPOR loans (rather than deductible ones)...

Based on my calculations... the car will be cash flow positive by a small amount for the first 5 years!!!

In 5 years time I can sell the car and pay out the remaining loan with cash and repeat the process all over again (buying a car that holds its value well would be better for this), or continue paying interest only payments on the car and keep the car (as depreciation would have run out by now there will be a small after-tax holding cost for the car from now on), or pay the loan out with cash and keep the car.

Regardless of which end path I chose, I'm confident my financial position in 5 years time will be able to handle it.

So the seemingly un-thinkable...ie. cash flow positive cars, appears to be a realistic possibility!!!

Can anyone see any flaws in this?

I think there may be some FBT implications, but am not sure how significant they really are??

Thanks.
 
Last edited:
Sometimes for business use, it is more effective to use a commercial hire purchase agreement, rather than a loan for purchasing a car... so check with accountant.

I'm not sure if the stimulus package gives you different benefits, but I dont' think you can claim all of the GST at the beginning in a normal car loan situation. So, also check with your accountant.

YOu will also need to keep a log book for at least 3 months to show the 90% business use.

Pen
 
1 flaw with the investment allowance and your strategy is that the car can be 2nd hand, or demo like u mentioned above.

The investments must be New purcahses.
 
1 flaw with the investment allowance and your strategy is that the car can be 2nd hand, or demo like u mentioned above.

The investments must be New purcahses.

I know they must be brand new, but can't it also be a demo, ie. not been sold to anyone, and still sitting in dealership?

I know second hand is not possible.
 
Hi there,

Following on from this thread:

http://www.somersoft.com/forums/showthread.php?t=51916

My car game plan now is to get a variable interest only loan secured againt surplus RIP equity to purchase a car for business use (90% business use, 10% private use).

As I have an ABN, I am eligible for the 50% investment allowance (which finishes in Dec this year).

I'll buy a new car (or demo model...needed to use the 50% allowance), ideally under the $57,180 luxury car tax threshold (to maximise the benefit of the 50% allowance), but it will probably be a little bit over this eg. 60-62k for what I am looking at.

With the 50% investment allowance on top of normal depreciation, tax deductible interest payments and vehicle maintenance/running expenses, GST refund on first BAS, surplus cash being used to pay non-deductible debts eg. PPOR loans (rather than deductible ones)...

Based on my calculations... the car will be cash flow positive by a small amount for the first 5 years!!!

In 5 years time I can sell the car and pay out the remaining loan with cash and repeat the process all over again (buying a car that holds its value well would be better for this), or continue paying interest only payments on the car and keep the car (as depreciation would have run out by now there will be a small after-tax holding cost for the car from now on), or pay the loan out with cash and keep the car.

Regardless of which end path I chose, I'm confident my financial position in 5 years time will be able to handle it.

So the seemingly un-thinkable...ie. cash flow positive cars, appears to be a realistic possibility!!!

Can anyone see any flaws in this?

I think there may be some FBT implications, but am not sure how significant they really are??

Thanks.

I could be wrong here, but to be CFP, it would need an income. There isn't any.

What you are describing is a way to buy and eventually sell at a profit, and minimise the cashflow drain which cars are..

The big difference - and a dangerous one if you don't realise - is the cashflow is still negative from day one, until such time as you sell the car.
 
Maybe i missed something but how can you have cashflow +ive cars without an income?

Care to share your business plan and how a car will be cashflow +ive or is it all top secret hush hush stuff for the time being?

So the seemingly un-thinkable...ie. cash flow positive cars, appears to be a realistic possibility!!!

Can anyone see any flaws in this?
 
Sometimes for business use, it is more effective to use a commercial hire purchase agreement, rather than a loan for purchasing a car... so check with accountant.

I'm not so sure about this. A CHP is a P+I loan. If the loan interest is tax deductible (due to business use) and you have other non-deductible loans it makes more sense to pay principal repayments on these loans rather than the deductible CHP loan. Surplus resi. equity to finance a car purchase is the cheapest source of car finance.

pennyk said:
I'm not sure if the stimulus package gives you different benefits

It gives you an extra 50% tax deduction up to the luxury car threshold.

pennyk said:
but I dont' think you can claim all of the GST at the beginning in a normal car loan situation. So, also check with your accountant.

Yes, that's possible, I will need to check this.

pennyk said:
YOu will also need to keep a log book for at least 3 months to show the 90% business use.

Pen

Yes, already done.
 
I know they must be brand new, but can't it also be a demo, ie. not been sold to anyone, and still sitting in dealership?

I know second hand is not possible.


A Demo is a Registered Vehicle and is technically a used car. to Register the vehicle the car has to have an owner. The owner just happens to be the Dealership you are buying from.

When you buy a demo you actually sign a 2nd hand vehicle Purchase Contract and not a brand new vehicle contract.

Unfortunatly i would beleive this makes a Demo Excluded.
 
Maybe i missed something but how can you have cashflow +ive cars without an income?

Care to share your business plan and how a car will be cashflow +ive or is it all top secret hush hush stuff for the time being?

Nope, nothing hush hush about it, I thought I explained it in my first post.

It's not going to be whoppingly CF+ve, just above break even/neutral.

But the main way this is possible is simple... the 50% investment allowance + usual depreciation deductions.

A bit like -ve geared new townhouses that become CF+ after tax.

Feel free to spreadsheet it and disprove the theory! (it could possibly be wrong!!)
 
What you are describing is a way to buy and eventually sell at a profit, and minimise the cashflow drain which cars are..

Not trying to sell at a profit, if I do sell, it's more like getting a car eg. for 60k, for 30k, but paying nothing for it for the first 5 years, and then at the end of the 5 years paying 30k then... and if you chose to sell, being left with no car after!

Bayview said:
The big difference - and a dangerous one if you don't realise - is the cashflow is still negative from day one, until such time as you sell the car.

No, that's the point, it shouldn't be, it should be CF+ve or very close to neutrally geared.
 
Last edited:
A Demo is a Registered Vehicle and is technically a used car. to Register the vehicle the car has to have an owner. The owner just happens to be the Dealership you are buying from.

When you buy a demo you actually sign a 2nd hand vehicle Purchase Contract and not a brand new vehicle contract.

Unfortunatly i would beleive this makes a Demo Excluded.

Yes, I think this is right, so I will stick to a brand new car.

But I found this link which suggested otherwise:

http://hartleypartners.com.au/tax-news-australia.php

"What about demo assets or if I improve or add to an existing asset?
An asset will be classed as new where the previous use has only been for the purposes of reasonable testing or trialling – apparently the explanatory memorandum to the draft legislation gives the example of a demo car as acceptable for the purposes of the allowance. Also where there is a pre-existing asset and expenditure is undertaken to improve or add to that asset then that expenditure will also qualify e.g. the refurbishment and installation of capital equipment. And office or shop fit outs will be eligible."


And this:

http://www.smartcompany.com.au/tax-...-cars-covered-by-the-50-tax-rebate/print.html

"Are demo cars covered by the 50% tax rebate?

--------------------------------------------------------------------------------


Posted by: jthomson in Untagged on 25 June 2009





New cars used primarily in a business in Australia are eligible assets for the investment allowance.

The legislation provides that an asset will not fail the 'new' test where there has been use for testing and trialing purposes. A demonstrator vehicle may fall into this category.

Where the vehicle has a low number of kilometres and has simply be used for demo purposes it is likely to qualify. If the vehicle however was being driven to and from home by the salesperson it may fail the 'new' test.

There are no absolutes on this and each case would be determined on the facts. Most situations will be reasonably identifiable, but the older the vehicle and the more the kms, the greater the risk that it would be deemed second hand."
 
I would suggest not buying a demo regardless if it fits into the class.

Demos are known to have the most warranty claims against them.

When i used to sell cars the Demo cars were the ones we took out the back and tested the hardest.

We sold a demo, and in the first 4 months the customers came in almost weekly with a problem.
 
I would suggest not buying a demo regardless if it fits into the class.

Demos are known to have the most warranty claims against them.

When i used to sell cars the Demo cars were the ones we took out the back and tested the hardest.

We sold a demo, and in the first 4 months the customers came in almost weekly with a problem.

Done, no demos for me! The car I am after will need to be ordered new anyway as they don't have any demos available.
 
loan secured againt surplus RIP equity to purchase a car.......Can anyone see any flaws in this?


The only flaw I can see in your argument JIT is that you shall be using this most valuable of resources to underpin the purchase of the car.

It could be put to much better financial use......but then, the way I read it, you are trying to upgrade the car purchase from a "bad" asset to a "not so bad" asset.

When all is said and done, it sounds like you are going to buy a fancy car anyhooo and are trying to justify it against what you already know to be true.
 
The only flaw I can see in your argument JIT is that you shall be using this most valuable of resources to underpin the purchase of the car.

It could be put to much better financial use......but then, the way I read it, you are trying to upgrade the car purchase from a "bad" asset to a "not so bad" asset.

When all is said and done, it sounds like you are going to buy a fancy car anyhooo and are trying to justify it against what you already know to be true.

Yes, you are basically right.

The real plan here was for me and my sibling to return the cars our father bought for us whilst at uni. so that he can trade them in (for a modest price) to help fund the purchase of his dream car.

And, because we now can (as we have ABN's), get a new car each for ourselves at little after-tax cost... but lose some equity in the process.

The 50% investment allowance gives us a small window of opportunity to do this.

Truth be told, I don't have that much interest in cars.

If it wasn't for the allowance expiring end Dec, I wouldn't even be considering this.

I guess the alternative is to just keep the cars we have, and give dad a leg up so to speak with some cash to help fund his new car purchase.

Or return the cars to him, and just buy cheap second hand cars with cash that do the job instead.

But... a new car would still be nice!

I do believe in ''delayed gratification'', but how long do you delay it for?

I've been delaying for some time now, and if there's a window of opportunity that will allow me to gratify tax-effectively now, then I don't think it's so bad a decision.
 
IMO the best value motoring - if you aren't into drivign a $1000 kingswood with an RAC membership - is to clock up your holden points on the westpac holden mastercard, go and get one of those 60th ann/international/americas cup specials for about $30k on the road, negotiate as hard as you can and get any sort of fleet you can on it, get your $3k rebate, use it 100% business and claim your GST as an input. cheap motoring for a new car with all the fruit.
 
My only word of caution is check with your accountant that you can claim 90% .
We now have issues as our company bought a car last year, and that was all good as we used it everyday in our business to earn an income BUT now we are share traders and it is a bit hard to prove that a 4 wheel drive is a necessity in earning that income!
so we have to do everything differently this year because of fringe benefits tax and will probably have to buy the damn car from our company!

so just run your numbers past the accountant....good luck though.

ps In terms of delayed gratification we waited until we could pay cash for both our new cars (including the one in the company)
 
If I understand your concept correctly the flaw in your plan is that new cars depreciate dramaticly, especially expensive ones. If you have an interest only loan in 5 years you will owe $60K and the car will be worth $20K if you are lucky. I drive a nice 5 yo car that when new was $50k. Have just been offered $8k as a trade in. Think I will keep it a while.
 
Top