Does Purchasing A Ute Result In A Tax Deduction?
When it comes to big tax topics that are often brought up in discussion with us, cars and their place in businesses are a common occurrence. It’s often talked about with regard to tradesmen, due to their vehicle being their primary transportation for work.
People want to drive a nice car, and being able to receive a tax deduction on its running costs can make it cheaper. Especially when it’s all done through your business.
The government is aware of this and as a result, the rules around tax relating to business vehicles are often adjusted – and not always in ways that benefit you.
A luxury car could once be bought in the name of your company, and have the depreciation and running costs claimed as a tax deduction even if it was completely for personal use. However, those companies also paid 49% tax (and there were no franking credits back then).
Over the years, the rules and regulations have changed. If your car is primarily for private use, you cannot claim a tax deduction for that part of the use of the vehicle (unless it falls under certain circumstances). If the vehicle is in the name of the company and provided as a fringe benefit, fringe benefits tax will apply.
There is also a cost limit to buying a car*. This is the maximum amount that you can spend and claim a tax deduction for the depreciation or the instant asset write off. For cars, this is currently set at around $60,733.
Many may assume that the purchase of a ute instantly categorises it as a commercial vehicle, which means that a tax deduction can be claimed for the entire running costs with no fringe benefits tax. This is not the case.
If you are in a profession such as a solicitor, buy a ute and have your logo placed onto it but only drive it to and from work (and perhaps to the hardware store on the weekend), this is not a vehicle purchased for commercial purposes. The tax impact of buying this ute is no different to purchasing a sedan or a 4WD for the same value.
There is no automatic tax deduction and nil FBT just because the car is a ute. This is because the primary usage of the ute is carrying passengers (private use). The solicitor does not automatically get a tax deduction with no FBT just because it is a ute. Claiming the full cost of a ute without worrying about FBT requires the use of the vehicle to be for business purposes.
As an example, if you are an electrician driving the ute for your business, with minor and infrequent personal use of it (such as going to the shops on the weekend), this can be claimable.
If you’re looking at buying a new vehicle, it is important to model the different ownership options available. However, unless your vehicle is 100% business use, there is no onesize- fits-all answer to the query of whether purchasing a ute will automatically lead to a tax deduction.
Disclaimer: This article contains general information only. Regrettably, no responsibility can be accepted for errors, omissions or possible misleading statements or for any action taken as a result of any material in this guide. It is not designed to be a substitute for professional advice, as such a brief guide cannot hope to cover all circumstances and conditions applying to the law as it relates to these items.