While we may be comfortable with recommending the responsible use of debt to clients it is worthwhile taking a moment to consider how a similar approach can be used in our own profession. Here are some tips for financial advisors to finance their next vehicle purchase from within their business.
Buying a car with a chattel mortgage
When you consider car loans for business vehicles, you should look into chattel mortgages as your best bet for beating the tax office.
First up, you don’t have to tie up any of your capital upfront. You can borrow more than 100% of the purchase price of the car, which means you can also amortise registration, on-roads, insurance, scheduled maintenance, and other extras on top.
You can also make instant tax deductions and deductions throughout the life of the loan. As you’re purchasing a car as a cash sale, you can claim the GST on the purchase price. Until June 30 this year, you can also take advantage of the instant asset write-off, up to $60,733 for the Financial Year 2021-22.
As you’re paying back the mortgage, you can claim all the interest on your repayments. You can also claim the tax breaks on depreciation up to the depreciation limit, as set by the ATO. Some assets may also be covered by accelerated depreciation – check more at the ATO.
By buying cars, you can incentivise employees with their own “company car” they don’t have to pay for themselves.
Other benefits of a chattel mortgage
Chattel mortgages have options for short (12 month) or long (7 year) loan terms and can also incorporate a balloon payment to reduce regular repayments. You may also claim the GST on the balloon or residual value payment.
Novated leasing for employees
If you run a firm and are looking to reduce tax on a regular basis but don’t want to have cars on the books, you may want to offer your employees a novated lease. The ATO states that if you lease a vehicle “in the course of carrying out your business” by way of a novated lease, you can claim the GST on the lease agreement as a credit.
If you have a substantial employee base, this can significantly reduce the tax you have to pay – saving your company a lot of money. It also improves employee satisfaction as they get a “company car” they don’t have to pay for (as it’s taken out of their pre-tax salary) and they also get a bump in their take home pay as they’re bumped into a lower tax bracket. Win, win, win!
Though some leases may require Fringe Benefits Tax to be paid, most of these taxes cancel each other out when they are structured correctly.
Remember to ask your accountant or financial controller for advice – this information is for illustration only.
