What you need to know if you purchase a car for more than $57,581:
Any business owners looking at purchasing a new car that costs more than $57,581 need to be aware of the tax implications. Special rules apply for cars with a value exceeding the car limit that restricts the amount of GST and depreciation you can claim.
From 1 July 2018 the following car threshold amounts apply.
Income tax
There is a limit on the amount ($57,581) which you use to work out the depreciation claim for the business use of your car or station wagon (including four-wheel drives)
Goods and services tax (GST)
Generally, if you purchase a car and the price is more than the car limit, the maximum amount of GST credit you can claim is $5,234 which is one-eleventh of the car limit amount. (1/11 × $57,581).
Luxury Car Tax
You cannot claim a GST credit for any luxury car tax you pay when you purchase a luxury car, regardless of how much you use the car in carrying on your business.
Please note also if the vehicle is subject to Fringe Benefits Tax (FBT), the full original cost (including any amount over the luxury limit) is used as the FBT cost base. This can make owning a luxury car in a Company or Trust very undesirable for tax purposes. The FBT cost may outweigh any taxation benefit.
This can be a confusing area, so we advise you to speak with us before buying that car, especially if the car is going to cost you more than $57,581.
This article appeared in the February 2019 newsletter. Author: Chris Mason
