Misconception about Claiming Car for Business

mamalove on 09/06/2022 - 12:04

Just saw the comments in another topic about people driving luxurious cars in Sydney and many people seem to believe that those who driving the cars are claiming the cars under business use. As a CA with more than 10+ years in Australia, I've never suggested any of my clients to buy any luxurious cars under the company's name as the FBT will kill the deal unless they could do the logbook showing at least 70-80% of business use, which is very uncommon for many of the businesses (except for tradies or REA).

Any comments or questions would be welcome.

Automotive

Comments

  • Drakesy on 09/06/2022 - 12:11
    +2

    DW we're all driving povo spec Camry's on here.

    • DarkOz on 09/06/2022 - 12:17

      and yet we all earn over $100k a year. We are an extremely thrifty lot.

      • Jimothy Wongingtons on 09/06/2022 - 14:19
        +7

        and yet we all earn over $100k a year.

        woah woah woah, whirlpool forums is that way ———————————>

        • DarkOz on 10/06/2022 - 07:16

          Didn't one of our spies in WP report back that WP members all earn over $150K a year?

          • Joey2scoops on 10/06/2022 - 08:58
            +1

            @DarkOz: Do a couple of you want to join with me in a WP membership?

  • Euphemistic on 09/06/2022 - 12:18

    How does FBT work? Who pays it?

    Some people don’t care, they just want to impress with their expensive displays of wealth.

    • mamalove on 09/06/2022 - 12:28
      +1

      Normally, we asked the owner to pay back the private use portion back to the company and company treats this as income. Hence, avoid paying FBT altogether. But the contribution back to the company is always not worthwhile if we're talking about 70k+ car unless the logbook shows a high percentage of business use.

    • Scantu on 09/06/2022 - 13:52

      FBT is a~50% tax paid by a company when they provide something to an employee for private use and it isn't FBT-exempt.

      It's set up on purpose to be the least logical way to spend money. Even if you did want to be extravagant, 99% of the time you'd still be better off just buying it personally (Assuming the company you work for will ding you for repayment the FBT)

      • sjj89 on 09/06/2022 - 19:30

        It’s actually ~20% of the purchase value of the vehicle, paid each year, and doesn’t take into consideration it’s depreciating value.

        If you’re an owner/director and your company is making good money, getting your $100,000 vehicle for 20% “tax” instead of drawing down $100,000 and paying 30-40% income tax, kinda makes sense.

        • Scantu on 09/06/2022 - 21:31

          IAWO?

          If you’re an owner/director and your company is making good money, getting your $100,000 vehicle for 20% “tax” instead of drawing down $100,000 and paying 30-40% income tax, kinda makes sense.

          I don't follow. You'll pay FBT which is significantly higher

  • freefall101 on 09/06/2022 - 12:34

    It's not so much about the FBT but that there's a cap on how much you can claim in terms of depreciation on a car, about $64k at the moment, but there's no cap on the value of the car for FBT. So if you buy a $200k car, you can only claim about $60k for depreciation on the business side. But on the FBT side you get stung on the full value of the car.

    There's still plenty of people who claim they totally park their BMW at work and use it 100% for work use, but the amount they can actually deduct for tax for the business is capped so there's not a tax benefit there at all.

    • mamalove on 09/06/2022 - 12:56
      +3

      Even buying the car just below the luxurious car limit would not give any benefits, in fact, it costed more to the business owner if they don't use the car much for the business. Also, I wouldn't believe that anyone would buy a BMW and park at their workplace and claim 100% work use. Been audited a few times by ATO and none of the officer was entertained by such a claim.

      • Domicron on 09/06/2022 - 14:56
        +1

        Glad to hear that the ATO is doing some work.

  • lddv04 on 09/06/2022 - 13:11

    What about claiming work km in your private car? I know someone who's accountant claims 5,000km for him every year, even though he hasn't done that many km. I believe 5,000km is the maximum you can claim with any records.

    • mamalove on 09/06/2022 - 13:20
      +1

      That's a separate issue to FBT. But i wouldn't claim 5000km for my clients if they don't use the car much, depending on the occupation reported to ATO, I would claim maybe 2-3000km, just to avoid being on the ATO's targets. In fact, I don't even claim 5000km in my tax return although I did travel to see my clients sometimes.

      • BewareOfThe Dog on 09/06/2022 - 14:10
        +2

        Yes, I never go over 3000KM's in claiming.

    • Jason Genova on 09/06/2022 - 15:46
      +1

      hope the ATO tears him a new one

  • AustriaBargain on 09/06/2022 - 13:30

    So you can buy a luxury car if 80% is for business use? Still might not make much sense if all you're saving is the tax you would have paid if you bought it all for personal use.

    • mamalove on 09/06/2022 - 13:35
      +2

      It may make sense to buy up to the car limit. even logbook shows 80% business use, buying 150k+ would still be worse off due to the high FBT taxable value.

  • rooster on 09/06/2022 - 13:32

    SO what about a dedicated Uber vehicles, which could be claimed 100%, and wouldn't have any FBT considerations.

    Surely under the existing "Instant asset write-off for eligible businesses" - there would no need to be a log book, as its dedicated to one use.

    • Euphemistic on 09/06/2022 - 13:37

      Why would anyone buy a luxury car and only use it for Uber?

    • mamalove on 09/06/2022 - 13:38

      Yes if you have a dedicated uber car, then surely you can claim 100% but practically speaking, I've never had such a client. My clients who are uber drivers all use their own personal car to do that.

      FYI, FBT is only applicable for those who put the cars under the company or trust's name. It doesn't apply to sole traders because sole traders claim only the car expenses based on estimated business use; whereas the company or the trust claim 100% business use then pay the FBT for the private use portion.

      P.S. claiming the car under asset write off is fine; it's just that you need to pay the FBT every year you use the car for private use.

      • rooster on 09/06/2022 - 22:10

        How about the flipside, that the vehicle is purchased as a private, but then claimed as business use for 95%.

        I see so many Uber's driving around here that are new cars, all are under the $60k price point, and can't work out how they can afford the depreciation personally for such a purchase.

        I can only imagine that the car was purchased under the instant asset write-off and maybe they sell it to their partner a year later ??

  • RebelOrlan on 09/06/2022 - 13:42
    +1

    I do not think it is a problem.

    If you have a luxury car with low km and then an everyday car, then it's going to be fine. Most people don't drive their luxury cars, they just park them in front of their garage like they do in my suburb.

    • mamalove on 09/06/2022 - 14:06
      +1

      If that's what you do, then it's fine. But i highly doubt that the luxurious car is used for business only and is parked 95% the other time. Also, justt be prepared to prove it to ATO in case of an audit. Just bear in mind that the travel between home and office is considered as private and ATO will also check against the toll road company to verify your claims as well. So if on particular day, you wrote that the car wasn't used but the car was in fact traveling on a toll road, then basically ATO will throw away your logbook and assess the FBT on a statutory formula.

      • Domicron on 09/06/2022 - 14:54
        +1

        ATO don't audit enough.

  • martyn on 09/06/2022 - 14:23

    Do you know anything about Labor's proposed FTB exemption for electric cars? Will that then make economic sense to lease an electric car through the company rather than buying privately?

    • Domicron on 09/06/2022 - 14:53

      No one knows until any official rules/law is put in place.

  • Domicron on 09/06/2022 - 14:51

    OP, paying FBT kills the benefit - obvious that it is used to close loopholes. I am not surprised a big percentage of sole traders or one (wo)man company claim with ATO with some element of fraud in the usage part.

    Also noted some small business flogging off cars after claiming the instant asset write off.

    The law is well designed for those that follow the rule. Sad that many do funny tax due to a less than desired enforcement from the ATO.

    • mamalove on 09/06/2022 - 16:08

      I'm not saying that every business will pay the taxes 100% in accordance to the law and ATO doesn't expect that either. As long as your claim isn't too unreasonable, they'll let you go. They won't spend too much resources chasing a few hundreds dollars from you.

      • Domicron on 09/06/2022 - 20:07

        That is exactly the problem.

        Some of these are into the thousands if not 10s of thousands.

  • Trying2SaveABuck on 09/06/2022 - 14:56
    +3

    logbook showing at least 70-80% of business use

    well this isn't that 'hard' to make up…. you only need to have 12 week record and you can BS a lot in it. - it is pretty hard for the ATO to 'prove' your lying on your log book. Im not encouraging anyone to do this but frankly im sure it happens all the time - the small and Large businesses in have loads of non-businesses expenses 'claimed' as businesses expenses

    I 'cannot' afford to waste money on top end cars but i know business people who literally change cars every 3-4 years and other who claim all their'personal and non-personal' expenses on their business - it isnt about what you can 'prove' it is very much about what you can get away with.

    Honestly we have a 'crap' tax system that favors wealthy a bit too much i know it is unpopular but i'd rather a 'flatter' system that ensure everyone pays 15-20% but have minimal deductions

    • CrowReally on 09/06/2022 - 15:17
      +1

      "it is pretty hard for the ATO to 'prove' your lying on your log book"

      The ATO doesn't need to prove anything. If you're contacted, you need to prove to them how your figures are arrived at.

      It's always been that way with them. They can give you an assessment saying you have a million dollars tax to pay, and you need to prove that it's incorrect by proving what your actual number is (not "alright show me how you got the million dollars guess ATO, I'm ready to poke holes in this"). If you can't 'prove' what the correct number is, you're stuck with the million dollars to pay.
      https://www.cbp.com.au/insights/insights/2021/august/section…

      Car specific tips: https://www.ato.gov.au/Media-centre/Media-releases/ATO-puts-…

      • mamalove on 09/06/2022 - 16:07

        I'd say that normally ATO officers are nicer to deal with compared to other government departments. If you could prove that your logbook is reasonable, they will let you go. Of course, if you're running a coffee shop and claim delivery costs using your cars 100% when you don't do any delivery, then it will be dismissed.

        • CrowReally on 09/06/2022 - 16:13

          Thanks for agreeing with me, the key point is the burden of proving your figures are correct is on you, not "try and prove i'm lying ATO good luck lol".

  • rektrading on 09/06/2022 - 15:31

    I'm 🤔 of driving at night to make some extra coins and get some 🚶 interactions.

    Is Uber worth it?

  • ol mate on 09/06/2022 - 20:58

    What are your thoughts on Commercial vehicles (FBT exempt utes etc) being provided to staff who definitely aren’t tradies or on the road? I.e. companies providing dual cabs for staff to drive to/from work because they are FBT exempt for driving to/from work

    • mamalove on 10/06/2022 - 09:52

      I have no comments on that one because as an accountant, I'm just advising my clients in accordance to the law. Whether the law is reasonable or not is beyond me. Having said that, I've never seen any employers provide a ute to employee just to avoid the FBT.

  • 0FoxGiven on 09/06/2022 - 22:39

    The logbook is only required if they get audited right? I know a few ppl who say their car luxury (80k+) and otherwise(40-50k) is used for their own business but they dont use it at all for business. I have resisted the urge to snitch on the pompous and total scammers (not friends of mine) for a while now but maybe I should

    • mamalove on 10/06/2022 - 09:53

      No, I always request logbook upfront if they want to minimise their FBT. If they can't produce a logbook, I'll use the statutory formula to calculate the taxable value for them.

  • xylarr on 10/06/2022 - 08:37

    Buy electric and there is no FBT, under the new policy from the new government.

    • mamalove on 10/06/2022 - 09:54

      Yeah but only when the law is passed. I could imagine a lot of people, including me, will flock to electric car if the new law is passed as it is proposed. That's a lot of saving in terms of taxes.

  • Stoozer on 10/06/2022 - 10:48

    Is it correct that a logbook only has to be kept for 3 months and is then valid for 5 years?

    Can the ATO only go back through 2 years of records for FBT purposes?

    • mamalove on 10/06/2022 - 11:00

      Yes logbook is only 12-week and can be used for 5 years.

      ATO could go back 4 years for FBT purposes.

  • rooster on 13/06/2022 - 09:15

    Right, so I got it together now so that I can purchase my car this FY.

    As a sole trader who works in profesional daytime role, with a reasonable income, and decides to earn some additional income after hours.

    I can purchase my new audi A4, and claim an instant asset write off against of the full price, as sole trader I don't have to pay FBT. I can make the claim this FY

    I start driving immediately and the A4 will be used 90% of the time for Uber Lux, and thus provide the 12 weeks of log books. This allows me to claim 90% of all rego / insurance and maintenance costs, I will have to cover the remaining 10% of these costs. This will continue next FY and continuing FY's. However This Fy I won't be able to claim any of these costs.

    After 3 years I sell the car to my son and pay tax on the sale price ?

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