Australian Convenience Store News - Legal - Employer funded superannuation

Business Motor Vehicles - Not So Simple
By Geoff Coy, Certified Practising Accountant

n this article, Accountant Geoff Coy looks at the not so simple aspect of running your car through your business

Running your vehicle through your business might not be as simple as your think. You might like to consider the following points before you purchase your next vehicle.

The GST phase-in rules for claiming input tax credits on new cars (by way of purchase or hire purchase) were removed on 23 May 2001. Now, taxpayers will generally be able to claim full input tax credits in the BAS returns to the extent that the vehicle is used for a creditable purpose.

Before 23rd May 2001, the GST phase-in rules denied input tax credits in full for new cars. However, in the case of so-called luxury cars (those costing in excess of $55,134) the input tax credit is still limited to 1/11th of the luxury car threshold of $55,134.

To illustrate this point, if you as the business operator acquired say a Holden Club Sport for $66,000 including GST the GST would be:

Under the luxury car threshold you would be limited to claiming input tax credits of only $5,012 in your BAS return. The difference of $988 ($6,000-$5012) cannot be claimed back as an input tax credit. Instead it is attributed as part of the cost of the vehicle.

Different rules also apply to the claiming back of input tax credits on vehicles purchased under hire purchase arrangements depending on whether the taxpayer accounts for GST using the cash or accrual method.

Motor vehicles are also subject to a limitation on the base upon which depreciation is calculated. For vehicles acquired in the 2001-2002 income year, the maximum cost upon which depreciation is allowable is also $55,134. This limit applies to cars, station wagons and 4-wheel drives regardless of whether they are new or second hand.

The Tax Office has not exactly been generous with the cost based limit that has been pegged at $55,134 for the last six years.

Based on the above example the purchase price of the Holden Club Sports was:

In other words $5,854 of the purchase price of the vehicle is dead money offering no tax benefit whatsoever.

If the vehicle was purchased on 1st July 2001 and based on the effective life rates, depreciation would be recouped as follows:

Based on the above the Diminishing Value Method is more tax effective in the first four years. If the vehicle is owned for longer than four years then the prime cost method is more effective.

Fringe Benefits Calculations

The GST and cost based limits also have an effect on the base value of vehicles when it comes time to calculate the taxable value of Fringe Benefits under both statutory and operating cost methods.

Under the statutory formula method where a vehicle is purchased after 1st July 2000, the GST is to be added to the base value of the vehicle in determining the fringe benefit

Similarly, under the log book method the deemed depreciation and deemed interest charge are calculated with reference to the GST inclusive value of the vehicle resulting in a higher taxable value

If you think that leasing your vehicle will be of more benefit because of the cost based limits it might pay you to remember that the lessor will face the same impositions and will simply pass them on to the lessee through higher monthly repayments.

These are a few points of many to consider when buying a business vehicle compared to what once used to be a relatively uncomplicated issue.

Derek & Helen Gorham Leave Shell Eastern Creek

Long standing clients of Geoff Coy, Derek and Helen Gorham, have left Shell Eastern Creek. Their franchise has expired and Shell will make the site a multi-franchise operation.

Derek and Helen first commenced in business in 1975 when they operated the Amoco service station at Orange. They moved to Sydney in 1979, taking over the Amoco depot at St Marys. In 1985 they purchased the old Vreeken brother site on the Great Western Highway at Eastern Creek. After Shell rebuilt the site in 1992, Derek and Helen operated it under a FORCE franchise.

Helen and Derek will take a long earned break from business which will no doubt include an extended holiday. C-store and Geoff Coy wish them all the very best for the future.