By Shell on Sep. 29, 2019
Consider this scenario: You need a new vehicle for your business and you know which one you want. You’re keen to minimise your tax bill, so it’s time to head to that new-vehicle showroom, right?
Well, slow down. When it comes to tax considerations, it’s largely irrelevant whether the vehicle is new or used.
“From a tax perspective, there really isn’t much of a difference between new or used if you’re buying from a dealer,” says Susan Franks, a Senior Tax Advocate from Chartered Accountants Australia and New Zealand. “The tax deductions are going to be the same and the GST costs are going to be the same.”
Instead, you need to take a step back and weigh up the pros and cons of each possibility to see which aligns best with your needs, wants and bottom line.
If you want a certain derivative, colour or feature, in the new-car showroom you can just tick the box for it. You’ll also have access to technology that might not be available on the same model with an earlier build date.
With a new car, you’re also gaining more peace of mind when it comes to reliability and ongoing service costs. It hasn’t been subjected to wear and tear and you’ve got the full term of the manufacturer’s warranty on your side. Increasingly common are fixed-price servicing arrangements which allow you to plot out future expenses with more certainty.
But new vehicles cost more to buy and expose you to the most savage part of the new-vehicle depreciation curve, typically losing about 30 per cent of their value in the first three years. And depreciation is one of the biggest costs of owning a vehicle.
The key attraction of a used car is spending less to buy the same vehicle. And because the depreciation curve shallows out, you’ll hold onto more of that money. Choose the right vehicle and you can get similar technology and features to what you’d find in the new-vehicle domain, as well as the balance of a factory warranty or fixed-price servicing deal, giving you some certainty about ongoing maintenance costs.
But even the very best near-new vehicle offers less peace of mind than a completely fresh alternative. As you wind up the age of the vehicle, you’ll be closing in on inevitable and potentially costly mechanical refurbishment, meaning more financial uncertainty or possibly ending up with a lemon.
Also, if your work vehicle must have a certain feature or colour, the market must provide it. That might take a while or not happen at all.
If you run an eligible business with a turnover of less than $10 million, you can claim the entire purchase price of a vehicle up to $30,000 under the government’s instant asset write-off scheme.
That could tip the scales towards buying used in some scenarios – but don’t leave your run too late if you plan to take advantage of this scheme.
“Try and buy your vehicle before June 30, 2020 because you not only need to have purchased it, you need to have used it or have it ready for use before then,” says Susan.
Consider, too, the implications of the luxury-car tax. This 33 per cent impost kicks in at $67,525, or $75,526 for fuel-efficient vehicles, but only applies to cars up to two years old. Choose a used luxury model older than that and you could generate substantial cost savings.
Once you’ve chosen your vehicle, your accountant can help determine the best path forward for financing the purchase and claiming deductions for car expenses.
“They can talk about ways to finance that vehicle or, if you want to do it from your cash, help with cash flow to work out when you can do it,” says Susan. “Just be aware of how the car is being used. You only get a full deduction if it is being used only for business purposes, so you need to be really careful about documenting private use versus business use.”