Using LOC to purchase a vehicle? Interest costs claimable?

[mja]

Hi all,

I need a new car for a new job I'm starting in two weeks.

I've decided against a car loan or a car lease, considering that some financier is making money at the end of the day... I don't care how tax feasible it is. Less cash each week hurts cashflow, period.

So, instead, I'm thinking of setting up a LOC against our investment property (which has plenty of equity in it), then using part of the LOC to help fund a depreciating asset: a car. I then plan to pay off this LOC as quickly as possible.

(Yeah, yeah. I should only buy appreciating assets, but I really need a car. )

So anyway, I'll only be using the car to get myself to and from work to derive an income.

*** Is the interest accrued against the LOC claimable in this instance? ***

Or is travel to and from work private, hence not claimable?

Finally, if I decide to buy a commercial vehicle (eg a ute, instead of a car) using a LOC, is *that* claimable? I know commercial vehicles generally aren't useful for private travel and thus any km travelled for work is business related - INCLUDING travelling to and from work. I could use a ute to carry my laptop and toolbox... (I work in IT)

Just trying to make the best use of the situation I've been put in. My wife works Northside and I'll be working southside, and I don't want to spend 3 hours a day in a car...

Any thoughts appreciated!

Cheers!

-- MJ.

 

[Programmer]

Hi mja,

So anyway, I'll only be using the car to get myself to and from work to derive an income.

*** Is the interest accrued against the LOC claimable in this instance? ***

Or is travel to and from work private, hence not claimable?

Finally, if I decide to buy a commercial vehicle (eg a ute, instead of a car) using a LOC, is *that* claimable? I know commercial vehicles generally aren't useful for private travel and thus any km travelled for work is business related - INCLUDING travelling to and from work. I could use a ute to carry my laptop and toolbox... (I work in IT)

If you're an 'employee' and you purchase a vehicle in your name, for which its use is obviously private, then the ATO don't care (well, mostly) whether you buy a truck, Rolls Royce, Datsun 120Y or motor bike - travel to and from work is not deductible and the loan/interest costs would not be either.

You work in IT and would consider a commercial vehicle? You'll need to specifiy exactly what you're situation is before any of the Accountants around here can attempt to steer you straight (So to speak). Perhaps you're currently contracting? Do you run a business? Would you commonly need to use the vehicle for your job (NOT directly to and from work), maybe to see clients?

Back to you.

 

[mja]

Hi mja,
You work in IT and would consider a commercial vehicle? You'll need to specifiy exactly what you're situation is before any of the Accountants around here can attempt to steer you straight (So to speak). Perhaps you're currently contracting? Do you run a business? Would you commonly need to use the vehicle for your job (NOT directly to and from work), maybe to see clients?
Back to you.

Hi Programmer!

Thanks for the response.

I don't mind utes.

I'm a fully fledged full-time employee of a private company which I don't own. I don't intend to do much contracting this year.

I'm a System Administrator and my role entails that I maintain IT server gear which requires me to have a laptop (needs to be portable to plug into those servers), a toolbox (screwdrivers, spanners, etc) and possibly spare server parts (maintenance) and software (CDs).

I've been reading up on FBT and commercial vehicles are generally exempt (MR2024). Basically, I could salary sacrifice a ute and use it to transport my work 'tools'. I've heard of accountants using dual-cabs to transport their briefcase! But this isn't relating to FBT as I'm not looking at salary sacrifice.

I'm looking at claiming interest expenses on a LOC.

From reading the "Individuals > What you can claim > Deductions list" section from the ATO website:

"You can claim the cost of trips between home and work if:
* you used your car because you had to carry bulky tools or equipment that you used for work and could not leave at work – for example, an extension ladder or cello"

Basically, I can't leave my equipment (laptop, desktop/server repair gear, toolbox) used for work at work, or the equipment might be stolen. So I could then use this as my argument.

Does this argument then stand for claiming interest expenses?

I'm looking at the LOC with a view to actually paying it off quickly and minimise interest expenses anyway...

Cheers!

-- MJ.

 

[Mry]

travel to and from work is not deductible and the loan/interest costs would not be either.

The only exceptions to this rule are where -
1. Home constitutes a place of business or base of operations and the travel is to a place of work.
2. Work commenced before or at the time of leaving home (ie a surgeon called up for surgery advice prior to travelling to work).
3. The taxpayer has to transport bulky equipment necessary for employment or work purposes (the test I use here is how strangely people look at me when I ask them if it is possible to carry their tools via public transport to work instead of driving them in).
4. If a taxpayer constantly travels to different work locations. (you have to prove that you have a web of workplaces (eg mobile salesperson/lender, meals on wheels),
5. travel to visit a client’s business is deductible (for substantial work duties, not just grabbing the mail),

Unless you fit one of the above, no deduction is claimable for home to work travel.

As for a commercial vehicle, buying a vehicle that carries less than a tonne or fewer than 9 passengers will still require you to prove your usage. If you buy a car that does carry a tonne or more or carries 9+ passengers (the threshold for which the ATO considers the car to be commercial), that means instead of the 4 methods for claiming car expenses (cents per km, log book, 12% method and 1/3), you have to prove your usage under general deduction principles (ie section 8-1). Some people have tried to do disgusting things with commercial vehicles to get deductions with flimsy justifications (including some accountants) so unless they can prove their ability to claim deductions with reference to some of these laws, don't follow their example.

You have discussed the bulky tools exception. That is available - as long as you can prove to the ATO that your tools are 'bulky', there is no secure lock up at work and you can justify the necessity of using a car to transport the goods. You can't argue the convenience of a car for your own usage, you have to justify it in light of the size of what is being carried around. I would tempted to apply for a private ruling.

Note that you still need to keep a log book for 12 weeks every five years anyway.

 

[mja]

Hi Mry,

Thanks for the clarification! Wow, you're up late... anyway, answers are inline.

The only exceptions to this rule are where -
3. The taxpayer has to transport bulky equipment necessary for elmployment or work purposes (the test I use here is how strangely people look at me when I ask them if it is possible to carry their tools via public transport to work instead of driving them in).

Unless you fit one of the above, no deduction is claimable for home to work travel.

Looks like the only one that could apply to me is the bulky goods one. A toolbox, laptop and software would be severely 'bulky' on public transport. I like your means test!

As for a commercial vehicle, buying a vehicle that carries less than a tonne or fewer than 9 passengers will still require you to prove your usage. If you buy a car that does carry a tonne or more or carries 9+ passengers (the threshold for which the ATO considers the car to be commercial), that means instead of the 4 methods for claiming car expenses (cents per km, log book, 12% method and 1/3), you have to prove your usage under general deduction principles (ie section 8-1). Some people have tried to do disgusting things with commercial vehicles to get deductions with flimsy justifications (including some accountants) so unless they can prove their ability to claim deductions with reference to some of these laws, don't follow their example.

You have discussed the bulky tools exception. That is available - as long as you can prove to the ATO that your tools are 'bulky', there is no secure lock up at work and you can justify the necessity of using a car to transport the goods. You can't argue the convenience of a car for your own usage, you have to justify it in light of the size of what is being carried around. I would tempted to apply for a private ruling.

So, in light of this, I assume that I would still need to consider a ute as I have used the 'bulky goods' exception above. Or accordinig to the ATO, can normal sedan-like cars also carry bulky goods?

You've just made me realise that in addition to claiming interest, I could also legitimately claim car expenses/depreciation if I satisfy the above means test.

I was initially only interested in claiming the interest on a LOC!

Cheers, and thanks for your thorough reply!

-- MJ.

 

[Mry]

The problem is that the ultimate decider on what is bulky is a judge. But before you go that far, you can ask the ATO via a private ruling. Initially, I wouldn't say that a laptop and a toolbox able to be carried by hand would be sufficiently bulky.

No need for a ute, unless you really DO need a ute to carry everything. The test is what you are transporting, not what you are using to transport stuff.

 

[mja]

The problem is that the ultimate decider on what is bulky is a judge. But before you go that far, you can ask the ATO via a private ruling. Initially, I wouldn't say that a laptop and a toolbox able to be carried by hand would be sufficiently bulky.

No need for a ute, unless you really DO need a ute to carry everything. The test is what you are transporting, not what you are using to transport stuff.

Hi Mry,

I'll apply for a private ruling now, just to be sure.

Good to see that the test is what rather than how.

Cheers!

-- MJ.

 

[WillG]

Hi,

Not sure if this is relevant but I'l mention it anyway.

I believe if you lease a 1 ton ute, the fbt will be $0. The lease payments will come out of pre-tax $$'s.

Cheers

 

[mja]

Hi WillG,

Cool, except I'm not leasing the vehicle.

There's an interesting thread at LSI about FBT and leasing:
http://www.ls1.com.au/forum/showthread.php?p=166052&page=3

-- MJ.

 

[FrankGrimes]

Hi,

Not sure if this is relevant but I'l mention it anyway.

I believe if you lease a 1 ton ute, the fbt will be $0. The lease payments will come out of pre-tax $$'s.

Cheers

Really? Even if you don't need a ute for work in any make or form? ie. Office worker such as myself

 

[TheCamel]

The only exceptions to this rule are where -
2. Work commenced before or at the time of leaving home (ie a surgeon called up for surgery advice prior to travelling to work).

running with this, I work oncall as an it support officer, so if someone calls me at 2am, saying remote connection is down, and i can't remote in to fix it, and i have to go into work to fix it, then i can claim the KM in this isntance, yes ?
(obviously, i'd rather stay at home ni my nice warm bed, but thems the breaks)

 

[mja]

Hi Programmer,

You have discussed the bulky tools exception. That is available - as long as you can prove to the ATO that your tools are 'bulky', there is no secure lock up at work and you can justify the necessity of using a car to transport the goods. You can't argue the convenience of a car for your own usage, you have to justify it in light of the size of what is being carried around. I would tempted to apply for a private ruling.

Note that you still need to keep a log book for 12 weeks every five years anyway.

I just got a call from the Tax Office - Instead of a private ruling, I've accepted an oral ruling which is just as good.

In short, my application under the bulky exemption has been successful and I can claim travel costs to and from work!

They used previous case law of Crestani vs Commissioner and IT112, IT2543, TR95/34.

-- MJ.

 

[thedude]

lol, this whole thread smells very fishy. I'd be careful mja if you're considering claiming the car loan interest.

Cheers,

Damon

 

[mja]

lol, this whole thread smells very fishy. I'd be careful mja if you're considering claiming the car loan interest.

Cheers,

Damon

Hi Damon,

What's fishy about it?

-- MJ.

 

[thedude]

Hi mja,

I'm not trying to put a dampner on this for you, I'm just finding it hard to believe the ATO would allow this.

You go to the same place of employment everyday. You dont go out to clients to service them or use your car other than to and from work. (I expect you'll use it for private purposes as well, but not claim those expenses).

The reason you are looking to claim expenses (inc carloan) against your car (to and from work) is because you need to transport your tools, being a laptop and various tools from work to home and vice versa because they may get stolen at work.

The problem Im having believing that your claim is ok, is that thousands of people do this everyday. I do this everyday. A laptop isnt bulky but thats imo.

Your reason for claiming the car loan expenses as tax deductable is flimsy at best, but i guess thats my opinion. Even I would have a better chance since i use my car to go to clients in addition from going to and from work HQ.

Anyways, i hope you dont take offence to my post. if this is possible I want to do it as well (I'm a Network Engineer), but i think if it came down to the crunch i.e. tax audit, you may find the car loan interest and any expenses would not deductable.

All that said, im not a tax accountant. I would get a private ruling in writing to be safe.

Im just curious, are the laptop/tools provided to you by your place of employment?

edit: just read the Crestani vs Commissioner ruling, did you know the box of tools Crestani had was 27kgs. Now thats bulky. Ive work in IT for 8 years and never had required a box of tools that weighs 27kgs.

Crestani vs Commissioner
http://law.ato.gov.au/atolaw/view.h...00001&recStart=1&recnum=3&tot=18&pn=ALL:::ALL



Cheers,

Damon

 

[mja]

Hi mja,

I'm not trying to put a dampner on this for you, I'm just finding it hard to believe the ATO would allow this.

You go to the same place of employment everyday. You dont go out to clients to service them or use your car other than to and from work. (I accept you'll use it for private purposes as well, but not claim those expenses).

The reason you are looking to claim expenses (inc carloan) against your car (to and from work) is because you need to transport your tools, being a laptop and various tools from work to home and vice versa because they may get stolen at work.

The problem Im having believing that your claim is ok, is that thousands of people do this everyday. I do this everyday.

Your reason for claiming the car loan expenses as tax deductable is flimsy at best, but i guess thats my opinion. Even I would have a better chance since i use my car to go to clients in addition from going to and from work HQ.

Anyways, i hope you dont take offence to my post. if this is possible I want to do it as well (I'm a Network Engineer), but i think if it came down to the crunch i.e. tax audit, you may find the car loan interest is not deductable.

All that said, im not a tax accountant. I would get a private ruling in writing to be safe.

Cheers,

Damon

Hi Damon,

No offence taken.

I've already got a private ruling for this. It's actually an oral ruling, where they give you a reference number and you can refer to that instead of a specific private rulling.

Hence, my reply to this post yesterday - I checked it out with the ATO - ***and they said it was ok***. The ATO employee also thanked me for doing the right thing - applying for a ruling to see if it fit the mould from previous case law.

I could probably do what the "thousands" of others in our professions do each day: just take my laptop to work each day and hunt around for the tools I need to do my job from time-to-time.

I could just leave my tools at work. Hey, they might get stolen, but I could then just get some more tools.

Instead, I'm thinking about being more productive in my new job. Thus, I can put everything I ever need to look after IT gear in a toolbox, throw it in the car and it's there for me.

Normally I couldn't care less about claiming car expenses... however, I'm thinking outside the square and asking the question: "How can I legitimately claim this on tax?". (Thanks Chan & Naylor). I'm sure the "thousands of people" who aren't claiming legitimate expenses, aren't because they don't know how to, or don't care. Those who do want to claim their expenses can't be bothered, or think it's too much work, or put some other lousy (or lazy) excuse in here.

The bulky goods exemption is the rationale, it's been accepted by the ATO for me, and it's what I'm going to use unless there's a future ruling explicitly against it.

We're probably in the same sector of work (IT - I'm a Sysadmin). I encourage you to get a private ruling as well. The turnaround time for me was just under a month.

Feel free to PM me on this if you'd like to know more about my specific circumstances.

Cheers,

-- MJ.

 

[thedude]

Hi Damon,

The bulky goods exemption is the rationale, it's been accepted by the ATO for me, and it's what I'm going to use unless there's a future ruling explicitly against it.

We're probably in the same sector of work (IT - I'm a Sysadmin). I encourage you to get a private ruling as well. The turnaround time for me was just under a month.

Feel free to PM me on this if you'd like to know more about my specific circumstances.

Cheers,

-- MJ.

I think i might do that

Btw, are the tools/laptop yours or the employer's? Does that make a difference?

And how much of the LOC interest are you allowed to claim?

As i said before, if this is possible, I'll want to do it as well.

Cheers,

Damon

 

[mja]

I think i might do that

Btw, are the tools/laptop yours or the employer's? Does that make a difference?

And how much of the LOC interest are you allowed to claim?

As i said before, if this is possible, I'll want to do it as well.

Cheers,

Damon

Hi Damon,

The tools are 100% mine. I'm certain that I'll be able to claim 100% of the LOC interest as the car I will be getting will be 100% for work. Any personal trips will be done using my wife's car...

-- MJ.

 

[djsherly]

This sounds almost too good to be true!

like thedude I'd be wary even in the light of an oral ruling. If the scenario presented to the tax office don't adequately match the facts on the ground, things could get interesting.

running with this, I work oncall as an it support officer, so if someone calls me at 2am, saying remote connection is down, and i can't remote in to fix it, and i have to go into work to fix it, then i can claim the KM in this isntance, yes ?
(obviously, i'd rather stay at home ni my nice warm bed, but thems the breaks)

As far as I know, if you travel directly to your place of work from home then that travel is not deductible, irrespective of the time that the travel occurs. If you travel to a place of work, and then to another, for some perverse reason you CAN claim the second leg of travel. You could be really adventurous and travel from you place of work (your study) to the office (the second place of work), but I doubt very much whether that would fly.

 

[chris.bennett]

Trips to and from work

"You can claim the cost of trips between home and work if:
* you used your car because you had to carry bulky tools or equipment that you used for work and could not leave at work – for example, an extension ladder or cello"

This sounds almost too good to be true!
As far as I know, if you travel directly to your place of work from home then that travel is not deductible, irrespective of the time that the travel occurs. If you travel to a place of work, and then to another, for some perverse reason you CAN claim the second leg of travel. You could be really adventurous and travel from you place of work (your study) to the office (the second place of work), but I doubt very much whether that would fly.

mja is suggesting trips to and from work are also claimable (based on the oral ruling he received) since carrying the 'bulky tools' meets the defined criteria. I'd agree with you that it seems too good to be true - if anyone knows, what would be required for other individuals to base their taxation claim decisions on the above information? Presumably oral ruling on a per-person basis, but does the Taxation department notice the trend and provide some published information on the specific circumstances for people in the IT industry seeking to claim car travel to and from work + associated costs ...?

Thanks,
Chris Bennett