Can I Claim Tax Deductions for Car Expenses?

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Have you ever had a mate buy a nice car for “tax purposes”?

For starters, the ATO have a thing called a Car Limit. In a nutshell, you are only allowed to claim GST and depreciation up to this limit. At the time of recording, this car limit was around $58,000. So it doesn’t matter if your car costs $100k, you are only allowed to claim up to the limit. The real killer here, is that when you go to sell your car, you will have to pay full GST on the sale price, even if the sale price is over the car limit. My tip here, is to keep the purchase price of your car below the car limit where possible, otherwise you are spending money and not even getting a tax deduction for it.

The second issue with cars, is that you can only claim the business portion of the running costs. You must keep a logbook for 12 weeks to see how much you are actually using it for business. Trips from home to work generally don’t count either. If you are in a Trust or Company structure, you may also have to pay Fringe Benefits Tax on your cars. If you have a car that isn’t used much for business, a portion can still be claimed, but depending on your FBT status, you may actually be being taxed to have it in a Trust or Company.

When structured properly, cars can be an effective tax deduction. But if you are not careful and aren’t properly informed, they may actually be costing you money without you even being aware of it.

So before you buy your next car, it’s worthwhile chatting to your advisor to make sure you aren’t going to be out of pocket.

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