13th June, 2024
Many people who have been thinking about buying a vehicle in their firm’s name for a while get motivated to finally make a purchase just before the end of the financial year.
It’s vital to remember that this is a big purchasing decision, though, and not one to take lightly.
Before you sign on any dotted lines, you need to consider all the factors that may impact your choice, both now and in the future.
This article will cover some of the most important elements to confirm before parting with money, so you can proceed with confidence and enjoy more peace of mind.
Before you go shopping for a car, ute, truck, etc., and get excited about a particular make and model, think about the needs of your specific business.
Create a list of needs based on where and how you’ll use the company car and how many kilometres you’ll likely put on it.
Consider if you need storage space, a high roof to fit equipment or tools, a secure and covered vehicle, or the ability to tow a heavy trailer.
You might also need to drive on dirt roads or other places where a 4WD is necessary or want an electric, hybrid, or low-fuel-consuming vehicle to cut costs over the years.
Some people, such as florists, food delivery companies, or pharmaceutical manufacturers, also need interior refrigeration capabilities to keep goods at the right temperature during transit.
Think about your current business needs and potential future ones. Then, scan your checklist before deciding on a vehicle, so you don’t accidentally miss any necessities.
It’s also vital to consult your professional advisors about your business situation and current Australian Taxation Office (ATO) rules before you purchase a vehicle.
Leanne Berry, Community Relations Manager (Partners) at MYOB and Director of Love Your Numbers, says, “There are so many complexities around business vehicles that the main thing I would stress is to talk to your financial advisors, such as your accountant or bookkeeper, to ensure you purchase the right type of vehicle and get the best deal possible.”
Leanne notes that failing to speak with advisors is one of the biggest mistakes she sees entrepreneurs make regarding work vehicle purchases.
There can often be elements involved that you just don’t understand.
For instance, Leanne says, “You might go and purchase a twin cab ute for your business, but then later learn that you’re limited in the amount of GST you can claim back because it’s actually seen as a passenger vehicle, not a commercial vehicle.”
Be careful not to spend too much on a vehicle and go beyond your needs.
“Avoid buying one that’s unnecessary, like a luxury car, just because you’re in business,” Leanne says. “Maybe a second-hand vehicle would do instead.”
Leanne sees many business owners not thinking long-term about the ups and downs of business when they commit to a car purchase.
“You need to consider whether you’re going to be able to keep affording to meet the financing requirements of a loan long term,” she suggests.
“Also, ask yourself, is this the best use of the equity and profits I have in my business? There could be better things to invest in to improve your business than buying a luxury car, for instance.”
Many entrepreneurs decide to seek out financing to purchase their business vehicles. Whether to pay cash or get financing depends on cash flow, in particular.
When you pay upfront for the vehicle, you pay less for it overall because you don’t pay interest on finance repayments.
At the same time, though, this means you’re tying up that cash in the vehicle and can’t use it for other things in your business.
You need to decide if your business can afford to tie up the capital in a vehicle and, in general, if the purchase of the vehicle is the best use of funds.
If you want to utilise finance, think about whether the cash you retain can be used to generate income higher than the cost of the finance you’ll pay in total (including interest charges).
If you decide financing is the way to go and you want to get a lease or a chattel mortgage, etc., think about the payments you’ll need to make over time and whether your business can afford them.
Leanne says, “You need to feel confident and comfortable in being able to meet those financing requirements now and as part of a forward-thinking plan. This is worth discussing with your financial advisors, too.”
Keep in mind that you can use your accounting software, such as MYOB’s tech solutions, to check cash flow, financial forecasts, profit and loss indicators, and other reports and better tell if your business can handle loan payments.
Another tip around buying a work car is to determine the likely company usage percentage and your business structure.
“If the vehicle isn’t wholly for your business,” Leanne explains, “you need to keep a log book to justify the number of kilometres and the expenses you can claim, based on the percentage of business usage.”
Depending on your business structure and the number of kilometres you drive for work each year, you may be able to claim cents-per-kilometres driven, and not have to worry about a logbook.
The depreciation (decline in value) you can claim on a company vehicle also depends on whether it’s a car or another type of vehicle, its overall cost, and your firm’s structure.
So, consider all these elements, check the ATO’s updated information, and talk to your advisors about your best way forward.
You may find that if you’re not going to drive the vehicle much for work-related needs, it may not even be worth buying a vehicle in the company name anyway.
Investing in a vehicle for your business is never a decision to be taken lightly.
Get the advice and updated information you need to make a choice that works best for your specific needs and don’t be pressured to buy a certain type of vehicle just because you see other entrepreneurs doing so.
Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.
MYOB is not a registered entity pursuant to the Tax Agent Services Act 2009 (TASA) and therefore cannot provide taxation advice to clients. If you have a query concerning taxation including filing your BAS return or annual tax statements then you should consult with your accountant or other registered tax adviser.