Seems like navigating tax laws as a business owner is like going through a maze, considering it involves buying and leasing vehicles. Understanding the nature of the Goods and Services Tax (GST) applicable for such transactions can be useful for businesses in planning sound financial decisions and avoiding nasty surprises at tax time. This is more pronounced if you are buying vans in bulk or leasing a business car; the knowledge of GST laws with respect to how they operate can affect your bottom line.
Training GST Basics for Vehicles
GST is a 10% tax on the majority of goods and services bought or used in Australia. GST will usually be included in the price of cars bought or leased for business purposes. If your business is registered for GST, you can claim credit for the GST on these purchases in your Business Activity Statement (BAS).
The most important eligibility factor is usage of the vehicle. In order to be eligible to claim GST credits:
- The car should be used in the activities of conducting your business.
- You must hold a valid tax invoice.
- You must be GST registered.
If the car is used exclusively for business, then you can claim the full GST. If for business as well as personal use, you can claim only the proportionate GST.
Buying a Business Vehicle: GST Consequences
When you purchase a new or used vehicle from a trader, GST will normally be factored into the price of the vehicle. For eligible businesses, that’s money that can be reclaimed.
But there is a limit. The ATO has a car limit on the amount of GST you can claim for passenger vehicles. The car limit for the 2024–25 income year is $69,152. The car limit only applies to passenger vehicles (not commercial vehicles such as trucks or vans). You will not be able to claim GST for anything over this limit if you’re purchasing a luxury vehicle.
Make sure that all the records, including:
- Tax invoices
- Evidence of business use
- Finance contracts, as required
For business owners who need easy car loans, the silver lining is that in itself, the actual finance doesn’t impact your GST claim, but the type of agreement might. For example, a chattel mortgage allows a GST claim up front on the entire purchase price, whereas an operating lease delays GST over the lease term.
Renting a Business Car
Leasing provides a lease option, which can be beneficial for companies wanting to keep their capital intact or update their cars regularly. Leasing does not lead to the ownership of a car, but you might still be able to claim GST credits on lease payments if the car is used for business.
There are two types of leases:
- Operating Lease: The ownership does not transfer. GST is levied on each payment and is proportionately claimable.
- Finance Lease: Like a loan; you might be able to tax back the cost of all or a portion of it based on the type of lease.
Leases are flexible, but you need to read the agreement to know how it is phrased. Residual value conditions, balloon payments, and lease conditions will all impact your GST treatment. Companies with multiple leased vehicles must also make sure their BAS has the correct GST component on all lease arrangements.
If your business has heavier trucks, there will need to be a comparison of truck finance rates before leasing or buying. Although GST on truck purchases will be fully claimable as they are for business use, how you finance can impact timing and BAS deductions.
GST on Running Expenses
GST does not merely extend to the original acquisition or lease. Fuel, maintenance, insurance, and registration are generally GST-inclusive as operating costs. GST credits on these costs may usually be claimed by businesses, provided that they are business use and properly documented.
If you qualify for fuel tax credits, these are to be separately lodged from your GST credits. The majority of businessmen get the two confused, but they are lodged in two segments of the BAS and have different requirements for eligibility.
Maintaining good records matters. That includes:
- Receipts for every expense
- A record of logbook or business use
- GST-amounts in your accounting package
This maintains your ATO conformity on track and safeguards you from frequent errors in GST reporting, including over-claiming on cars with mixed use.
Dealing with Private Use
One of the grey areas for most businesses is where vehicles are used for business and private purposes. In such cases, GST credits must be apportioned. The ATO allows reasonable estimation methods, but a logbook for at least 12 consecutive weeks must be maintained to give a percentage of business use.
For example, if you use your car 70% for business and 30% for private purposes, you can claim only 70% of the GST on purchase, leasing, and operating expenses. It doesn’t matter whether you lease or purchase your vehicle.
You also need to change your claim if your business use is substantially different or if you sell the car. Keeping good records keeps you in the right and maximises your credits.
Knowing how GST affects business vehicles, whether bought, leased, or financed, is important to wise financial planning. Whether you are considering straightforward car financing for a sales fleet or comparing truck finance rates for haulage business, being informed to the fullest enables you to make the best of every benefit the tax system presents.
And with rules and regulations constantly being revised, looking out for current ATO rules—such as those explained here within this ATO compliance guide—can help you move through business tax without difficulty.