How can I finance my business vehicle
Unfortunately some financiers throw words like lease around without explaining the difference between what your signing, and what a lease actually is.
Furthermore, the tax and GST consequences of your finance arrangement can be very different.
MAIN TYPES OF FINANCE FOR VEHICLES
- Hire Purchase
- Commercial Hire Purchase
- Operating Lease
- Financial Lease
- Chattel Mortgage
- Commercial Loan
TABLE OF MAIN DIFFERENCES
The table below illustrates the main differences between each finance type, in terms of tax deductibility, depreciation on the vehicle and GST. For GST purposes, there are differences on what you can claim based on your registration details – either accounting for GST on a cash basis, or non-cash accruals basis.
|Can I claim all GST on the purchase of my vehicle?||Can I claim GST on the vehicle payments?||Do I get an income tax deduction for my vehicle payments?||Can I claim depreciation on my vehicle?||Will my vehicle show as an asset in my balance sheet?||Is this type of finance complex for tax?|
*Contract before 01/07/12
|Yes – only if you are registered for GST on an accruals basis||No – if you are on accruals, yes if you are on cash – but only 1/11th of principle in each repayment||Yes – but only for the interest on each repayment, to the extent it relates to your business||Yes – to the extent it relates to your business||Yes||Very complex|
*Contract on or after 01/07/12
|Yes||No||Yes – but only for the interest on each repayment, to the extent it relates to your bsuiness||Yes – to the extent it relates to your business||Yes (if over $5000 cost, otherwise fully expensed)||complex|
|Operating Lease||No||Yes||Yes – excluding the GST already claimed||No||No||Simple|
|Financial Lease||Yes – only if you are registered for GST on an accruals basis||No – if you are on accruals, yes if you are on cash – but only 1/11th of principle in each repayment||Yes – but only for the interest on each repayment||Yes||Yes||Complex|
|Chattel Mortgage||Yes – cash or accrual GST registration||No||Yes – but only for the interest on each repayment||Yes||Yes||Average|
|Commercial Loan||Yes – cash or accrual GST registration||No||Yes – but only for the interest on each repayment||Yes||Yes||Average|
Startusup highly recommends the use of an operating lease for vehicles that are predominantly for business. This means you are basically renting the vehicle. The reason we recommend this option is because for a true business vehicle, its usually done substantial kilometres, had significant cosmetic damage, and the owner is keen to upgrade after a few years. With this finance option, you simply hand the vehicle back to the financier, and then rent a new one, or you usually have the option to buy that vehicle if you want at a predetermined value. With all the other finance options, you must purchase the vehicle at the end of the term you choose, and usually that book value you pay is higher than actual market value. Commonly you then decide to upgrade vehicles anyway and loose more money on a trade in or private sale.
For further information on finance methods or a referral to a recommended financier, please email [email protected] or arrange an appointment.
This fact sheet is provided as general advice and does not cover every possible situation and related consequence. Further investigation should be done in relation to your own particular circumstances with an appropriate professional, and hence Startusup accepts no liability for actions carried out that rely on the information provided in this fact sheet.