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Acano Chartered Accountants Blog

Buying a New Car

Clinton Ham - Friday, February 14, 2014

We're often asked - 'am I better to buy a new or second hand vehicle and whats the best way to finance it?'

Unfortunately there's no universal answer to this question. A number of different factors should be taken into consideration:

  1. New vs Second Hand
  2. Timing of deduction
  3. GST
  4. Affordability
  5. Loan offer

For the purpose of this article we will assume you are GST registered and entitled to claim 100% of the vehicle costs.

1. New vs Second Hand

It makes no real difference whether you purchase a new or second hand vehicle. The tax deduction is calculated in exactly the same way in either case. Generally you will find that a new vehicle will be purchased from a business which is GST registered enabling you to claim this amount back. Second hand vehicles may not have GST included in the sale and therefore no GST to claim back.

2. Timing of deduction - should I lease or own outright?

There is no 'right' answer to this question. The main difference between the two has to do with the timing of the deduction.

 A lease will give you a flat deduction equal to the payment amount for the entire duration of the finance period.

 Owning the vehicle outright (eg through a personal loan or chattel mortgage) allows you to claim depreciation and interest on the loan. It will give you a higher deduction in the initial years, and lower in the latter years.

Generally we'd favor purchasing the vehicle over a lease - a dollar today is worth more than a dollar tomorrow.

3. GST

If you lease a vehicle you will claim GST on each payment. If you buy the vehicle you will claim all the GST on the purchase in one go in the quarter/month that you purchased the vehicle.

4. Affordability

Obviously when entering into any finance agreement, you need to consider the affordability of the repayments. Do you have the cashflow to support the repayments?

5. Loan Offer

You should also consider the offer that the financier has made to you. Is one method of financing the vehicle a clear winner in terms of interest rates offered?

 The ATO also has some info on claiming motor vehicle deductions in your business here.

So what happens I dont use the vehicle exclusively for business purposes?

For ease of comparison the above information assumes you will claim 100% of all your vehicle costs. Either because it is a commercial vehicle or has appropriate logbook documentation. 

 If you dont use your vehicle through your business (eg as a deduction against your Wage), or you have an element of private use,  the ATO has 4 methods available for calculating your deduction. These for methods are:

  1. Cents per km
  2. 12% of original value method
  3. One third of actual expenses method
  4. Logbook method

The ATO provides further information on calculating your deduction using these methods here.

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