It’s Not a Car! Or is It?

cars and FBT

It’s Not a Car! Or is It?

The pandemic did one thing. It exploded the sale of cars and utes.

In fact, we went berserk and bought anything that had wheels attached.

There was good reason for this. You see, the pandemic meant the Government needed you to go out and spend a wad of cash. And there is nothing that will get you out with your wallet then a promise that you will get tax relief on a new set of shiny wheels.

Now everyone thinks this was a great deal and the taxman was throwing some extra cash their way. Not quite.

The reality is the tax relief is the same. The only difference is that instead of getting it over several years you get it in one lump in one year.

The reality is the tax relief is the same. The only difference is that instead of getting it over several years you get it in one lump in one year.

There’s more. Many think the whole amount can be written off. For Utes, maybe. For cars not necessarily (see below). This means below a certain value, cars can be good for your business tax returns. Above that and the taxman is smiling all the way to the bank, not you.

But this means that some tax benefit is accelerated which is still good news for your business tax return.

My advice on this?

I always say if you need to buy a new set of wheels because your old one is on its last legs (or tires) then do it. By the way, saying your vehicle is 3 years old and done 100,000 Km so you need to change it not really a reason. That is just an excuse to buy a new set of wheels because you want to change not because there is a need to change.

Utes are my favorite because everyone who buys one tells me they do not need to keep a logbook or because it holds more than 1 tonne in weight it is not subject to FBT.

I have Mercedes Benz Utes shown to me as well as the monster Dodge Ram. There is no way the Dodge Ram can be classified as a motor vehicle. I’m convinced even a tractor will think twice before taking it on.

It’s a Car. Err No It’s not.

Anyway, the thing is that according to the ATO there are only two definitions. It’s a car. Or it’s not a car (also known as a commercial vehicle).

To be a car it must carry a load less than 1 tonne and can carry less than 9 people. Anything else is a commercial vehicle.

So, what else do you need to know?

Generally, if you buy a car amounting to $60,733 or less then the whole amount can be written off in your business tax return. Anything, over $60,733 you get $nil. Zilch. Nothing. 

Eg buy a car for $75,000 you get tax relief on $60,733 but the remainder ($14,267) you get no tax relief on – ever. That’s crap.

If you buy a commercial vehicle, there is no limit.

So, if you buy a commercial vehicle or a car less than $60,733 the news is good.

But it does not end there.

With cars you need to keep a logbook or use ‘statutory method’ (read business mileage too low or too lazy to want to keep a logbook) to work out the private/ business use.

With commercial vehicles you do not need to keep a logbook.

Fringe Benefit Tax – (Crap)!

And this is where the confusion occurs. Many think that a commercial vehicle means no Fringe Benefits Tax (FBT).

But under certain circumstances, commercial vehicles can still be subject to FBT. This is the case where there is private use which is not ‘minor, infrequent or irregular’.

So, if you take your Dodge Ram (assuming you have space to put it somewhere because it isn’t going to fit in your garage) home every day or even once a week then the Ute is subject to FBT. Use it privately to drop the kids off at school? Yep, you get caught. In fact, the ATO goes into more detail. They say:

  • Any employee should not travel more than 1,000kms for private purposes
  • No private single return journey is longer than 200kms
  • Where the commercial vehicle must be used to travel between home and work (because ‘heavy equipment’ needs to be carried), any diversion can only add no more than 2kms to the ordinary trip length.

Be wary of the ‘heavy equipment’ rule. Many assume if you have heavy equipment that is good enough. Not so. You can only claim if:

  • the tools or equipment are essential for your work duties
  • the tools or equipment are bulky (this means that because of the size and weight, they are awkward to transport and can only be transported conveniently using a motor vehicle)
  • there is no secure storage area for such items at the workplace location

Finally, before you go out and buy your Dodge Ram make sure

  • You have space to keep it at your business premises because you cannot take it home! Unless you are happy paying some FBT and are prepared to extend the length of your garage.
  • The reason you are buying one is to transport heavy goods which cannot be stored anywhere else safely.
  • You really ‘need’ one.

And please speak to us so we can tell you what it really means!