Purchasing New Car through Small Business

LKinseyPadfoor on 17/09/2024 - 10:19
Last edited 17/09/2024 - 16:26 by 1 other user

Hi all, in need of a new car (newest one in the family is over 20 years old).

We have a small business that we can purchase through as well as also having option for salary sacrifice. While we could probably pay for the car outright, I believe the best option for the business might be to use some type of finance. I am really struggling on two fronts:

  1. If novated lease vs loan/finance is better option
  2. Whether FBT offset for electric is worth it compared to what we would otherwise pay (we are after a mid SUV and current prices for PHEV or full electric are about $30k above their mild hybrid equivalent given no solar and lack of charging infrastructure and over 100km per day commute, struggling to find a good option that will be eligible for FBT offset, but are we going to end up just paying the difference in tax anyway?)

If anyone has any advice or links so I can work this stuff out it would be appreciated. My accountant it seems is not very helpful. sigh

Financial

Comments

  • Jimothy Wongingtons on 17/09/2024 - 10:23
    +13

    My accountant it seems is not very helpful.

    Time to get a better accountant? This is literally one of the most common things to come up for a business?

    • netjock on 17/09/2024 - 12:59
      +1

      I hope OzB has professional indemnity insurance for all the free advice hehehehe

    • Gunnar on 17/09/2024 - 14:31
      +1

      I think their accountant is the Dr Nick of accounting

      • Jimothy Wongingtons on 17/09/2024 - 14:36
        +1

        He went to Hollywood upstairs accounting college too?

        • Gunnar on 17/09/2024 - 16:55
          +1

          Alternatively he could have also been an account talking guy

  • nubix on 17/09/2024 - 10:38
    +2

    You don't need to go through leasing because you have an ABN
    Get the PHEV
    They're not 30k more

  • sumyungguy on 17/09/2024 - 10:40

    If you're running a small business and can't figure this out, I suggest both a small business coach and a better accountant. Ask your accountant about a chattel mortgage.

  • holdenmg on 17/09/2024 - 10:43

    If you look @ Mitsubishi, the numbers aren't bad.
    2024 Mitsubishi Eclipse Cross PHEV ES 2.4L SUV 4WD Hybrid
    2024 Mitsubishi Outlander PHEV ES 2.4L SUV 4WD Hybrid

  • spackbace on 17/09/2024 - 11:09
    +1

    Some very competitive commercial rates out there at the moment, through the dealership (depending on the brand)

    • MITM on 17/09/2024 - 15:31

      Awash with rebates and free services. Go in with your best cash offer - then walk away. They won't let you leave without a new car.
      Then you claim depreciation, gst etc. What's Salary Sacrifice got to do with the issue ?

      • spackbace on 17/09/2024 - 15:37
        +1

        Go in with your best cash offer

        Laughs

        You realise cash offers for car buying haven't been a thing for decades? An offer on the car, with a possible commitment to their finance is far more likely to get you the best price

        As to the rest, you clearly weren't replying to my comment

        • 2esc on 18/09/2024 - 16:58

          Maybe for a brand new car but a second hand car dealership it certainly makes a big difference.

          • spackbace on 18/09/2024 - 17:15

            @2esc: Again, still doesn't… Finance is king

            Source - working for said dealership

  • geekcohen on 17/09/2024 - 11:56

    Just look for a competitive loan rate. Last Financial year, I claimed about $13k in car repayments for my SMB, plus running costs.

    You don't need to have the vehicle in the business name; just log how you use it. I have an app called DriversNote that I can use to tag which trips are personal and which are business. Then, you claim the business % of running costs, etc. You only need a 3-month log, so if in 3 months you used the vehicle 100% for business, then you can claim 100% of that FY.

    I guess it depends on how you have your SMB setup as well.

    • netjock on 17/09/2024 - 12:58

      Problem is this is getting GST back and also depreciation through the business.

      You are talking about business use operating expenses.

  • netjock on 17/09/2024 - 13:02

    1) if novated lease vs loan/finance is better option

    If your business can generate a better return then yes. Say your loan is 10% tax deductible becomes 7.5% (25% company tax rate assumption). You'd want to be generating 10%+

    But don't over pay for your car because $10k put into super (search for the vanguard report) is equal to $200k in 20 years time. Super is also a tax deduction.

  • freefall101 on 17/09/2024 - 18:10
    +3

    I'd seriously look at a new accountant, this is stuff they should know. Ignore novated leases, they shouldn't be relevant to you.

    I have been out of the tax game for 10+ years, but there are a couple of considerations here. If you buy a car in the company and use it yourself, you need to consider the personal benefit. This can be in two forms, it's a benefit to you as an employee, i.e. a Fringe Benefit, in the form of a payment that's non-cash. Usually this gets Fringe Benefits Tax on it, but if it's an EV there is no FBT.

    However if you're purchasing the vehicle as a shareholder there is a different set of rules, it becomes a loan or a dividend related calculation. There is no special EV related rules, but it's also no different to buying the car yourself vs in the company besides saving some GST.

    It comes down to whether you take a salary within the company, what your income splitting is like and a bunch of other stuff that your accountant should a million percent understand the complexities on. If they don't - piss them off. I used to do a couple of hours a week of tax updates when I worked in tax, as well as some regular courses (a lot of stuff comes with free lunches, so it's silly not to go to them). If they're not doing enough to understand this kind of basic stuff, I'd be reconsidering them.

    And since no one asked, where novated leases come in is it's an easy way to garnish wages then provide the vehicle + costs to an employee without doing much leg work for companies. In a small company though it's easy, you'd just treat it as a company expense, deduct all the expenses then use it yourself without any tax considerations. If you were to buy an ICE vehicle instead (and take out a loan for it), you should calculate what the personal use is and the company pays FBT on that. Basically kills the benefit in a different way.

    • kiitos on 18/09/2024 - 08:30

      Are there scenarios where buying an ICE through your business is worthwhile?

      • sumyungguy on 18/09/2024 - 08:36

        Vehicles with the limited private use FBT exemption; e.g. dual cab ute with a one tonne payload. Small business then rents a PO box far from both home and work.

      • RMBC on 18/09/2024 - 08:55
        +1

        Generally any vehicle under the car cost (depreciation) limit that you have business use for is worthwhile. The main benefit of putting it through a business is claiming the GST on expenses, however much of this is negated by the FBT, either actual payments or recipient's contributions for the private portion.

        Given the FBT is calculated at the top marginal tax rate, there is the greatest benefit when you're in the top marginal tax bracket as the impact is far less than if you're on a lower marginal rate.

        The exemptions for vehicles with a one tonne payload have been pared back that in reality it's almost impossible to meet the criteria, unless you have another vehicle for personal use

  • RMBC on 18/09/2024 - 09:02

    I'd be really disappointed if anyone in my team gave you the advice you've received.

    Without knowing specifics, it's not possible to provide advice, and whilst I am a tax agent, I'm not your tax agent. Generally though, the nice part about the FBT exemption for qualifying EV/PHEVs currently, it means that you still get to claim a tax deduction for private use of your vehicle. FBT is expensive for private use adjustments. Whether it works for you will very much depend upon use case. One thing to remember is you only get a tax deduction for spending money.

    Given your 100km per day of commute, you're likely to have a large private use percentage, so the FBT exemptions suddenly become far more valuable.

    As you own the business, don't worry about novated leases, any costs incurred will be in the business, and novated leases are only really beneficial for salary packaging and ease of administration. They are generally more expensive than if you were to do it yourself; great for employees, not so much for owners.

    Another point to be clear on, if the business is in a company or trust, FBT is relevant, if it is an individual ABN or partnership, FBT is not relevant, however an adjustment for private use would be required, meaning the FBT exemption is irrelevant.

    • unicorse on 18/09/2024 - 14:51

      Some commenters above have recommended OP get a PHEV. As the exemption for PHEVs is ending next year, does it make financial sense to get a PHEV over a Battery EV now?

      Is there a scenario under which the FBT exemption could still be kept on a PHEV beyond next year for a business owner (i.e. not a novated lease)?

      • RMBC on 18/09/2024 - 15:55
        +1

        Per the ATO provided the vehicle was purchased pre 1 April 2025 & there is an ongoing commitment to provide private use of the vehicle, then the exemption continues.

        In many ways, if the intent is to keep the vehicle for a longer term then this would be even more beneficial as for the novated lease, once the term is up, then arguably so is the exemption. In this instance the benefit should be ongoing for as long as there is the ongoing commitment of the business to provide private use of the vehicle.

        • unicorse on 18/09/2024 - 23:08

          I am a bit puzzled as to what "ongoing commitment" means in the context of a self-owned company/business. Does it mean that the vehicle has to be under finance? Or is the requirement satisfied by the business declaring an "ongoing commitment" to provide the private use?

          • RMBC on 19/09/2024 - 08:47
            +1

            @unicorse: My interpretation would be that there is an ongoing commitment by the business to provide the vehicle for private use for the owner/associate, although I haven't reviewed the legislation to be able to confirm 100%

    • KinseyPadfoor on 19/09/2024 - 23:58

      In defence of my accountant, I was rushing when typing out my question and didnt make it clear our options include purchasing through business (partner) or novated lease through separate employment (me), their advice wasnt that crappy.

      Thanks for the info! Sounds like I need to go annoy the automotive forum on best EV/PHEV options sigh

      • RMBC on 20/09/2024 - 09:55

        Fair enough, and sorry for being negative; I just get frustrated when I see people, ostensibly, receiving poor advice. At the end of the day, it needs to be a relationship that you are happy with.

        Happy hunting!

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