Typically, if you take out a car loan to buy a vehicle that will be used for business purposes, you could claim some of the expenses on your tax. Some of the expenses you may get a tax rebate for include operational expenses like fuel and oil, repairs and servicing, lease payments, insurance premiums, registration, and depreciation.
You may also get a tax deduction on the car loan interest if you’ve taken out a chattel mortgage, where the vehicle acts as the security for the loan. On a chattel mortgage like a property mortgage, you’re listed as the car’s owner, allowing you to claim the car loan on your tax return.
Ideally, you should make loan repayments from your business income. But do keep in mind that your lender retains a registered interest in the vehicle so that if you default on your car loan repayment, the lender may repossess your car. The tax rebates you can claim if you’ve taken out a chattel mortgage include the GST you paid when buying the car, the loan interest you’re paying, and the car’s depreciation.
The Australian government recently announced tax rebates of up to $150,000 on vehicles purchased for business use by small business owners. You may qualify for this instant tax write-off if you meet certain eligibility criteria related to your annual business turnover and the vehicle’s cost. Consider discussing the potential tax advantages with your business accountant when applying for a car loan.
Can I claim a car loan on my tax return if I don’t own a business?
If you’re an employee rather than a business owner who needs to purchase a car to fulfil employment. In that case, you may prefer a novated car lease as an option to purchase a car. You’ll need your employer’s consent for this finance arrangement as they have to make the lease repayments on your behalf. Usually, the costs incurred in operating the car, like fuel, insurance, registration, service and maintenance, including your repayment instalment, are deducted from your before-tax wages.
Through this arrangement, you get the advantage of a lower tax rate as your taxable income is reduced by the deduction of the business car expense. Suppose your lease repayment amount is within the depreciation limit. In that case, you could also claim the full amount as a tax deduction rather than claiming only the loan interest and vehicle’s depreciation.
You should confirm if you can claim expenses incurred on business trips like attending conferences or meetings, travelling to different worksites, and delivering or picking up office equipment. Since this is a non-cash benefit, you may have to pay a Fringe Benefits Tax (FBT) as per the ATO’s guidelines, although there may be a concession for business cars.
If you stop working for that particular company, the car lease agreement would be cancelled, and the repayments are no longer your employer’s responsibility. You will have to take up the loan repayments out of pocket or renegotiate the agreement with your new employer.
Another option is to simply take a car lease in your personal capacity. Your financier buys the vehicle on your behalf, and you then lease it back from them and start making monthly repayments. You maintain the car’s ownership, and since you’re using it for business purposes, you enjoy the tax benefits. If you’re declaring the car lease as a business expense, you can claim the GST paid while purchasing it. While you can apply for a secured or unsecured car loan as well, you’d have to pay higher interest on the loan, which is not ideal. Like a chattel mortgage, the interest costs, as well as depreciation costs, are tax-deductible.
Some Aussies are also renting out their personal cars to increase their earnings. If you do this, you’ll need to separate private car use from any use that helps you earn income. The ATO is clear about not allowing tax deductions on expenses incurred for personal use. No matter what kind of car loan you decide to take, you can only claim tax benefits if you use your car for business purposes.