Purchasing car with P/L company, 0 business use

[henryjoshua]

I'm in the market for a new car (looking to spend about 30$k) and I'm wondering if there are any advantages to doing it under my P/L (sole shareholder/director) given that I have absolutely 0 business use for it. Would there still be some potential advantage to be had despite FBT? I don't draw a salary from the company, just dividends, and I am registered for GST.

Thanks for the insights

 

[olaitan]

@henryjoshua You need to crunch the numbers to see if the benefit outweighs the FBT.

 

[henryjoshua]

@olaitan Given that FBT is 47% this will basically never make sense right? Or are there some other factors I need to consider? I wish there was one way I could justify at least some business use but my business is 100% software so, yeah

 

[olaitan]

@henryjoshua Give me an estimate yearly cost for fuel, ins, rego and repairs and I can put the numbers together.

 

[henryjoshua]

@olaitan Lets say 2.5k for fuel, 1.5k for ins+rego, 1k for repairs?

Is this going to be a novated-lease scenario here though, and does that make sense given I'm not PAYG at my own company and will be liable for FBT?

 

[olaitan]

@henryjoshua The company would be liable for FBT, but you as an employee make an FBT reimbursement to the company, this makes the net fringe benefit NIL.

This amount is taxable income to the company, but can be made via the loan account rather than cash.

Doing the numbers over 5 years, it actually seems like a good idea to buy it in the company. The FBT reimbursement (income) is almost fully offset by the expenses you claim under the business AND this is before considering you can use the IAWO on the car purchase and claim the GST too. The FBT also drops in the 5th year of owning the car.

• Running costs/ yr
• $5000 gross, $380 gst, $4619 net
• FBT reimbursement/ yr
• $6000 gross. $545 gst, $5454 net

 

[henryjoshua]

@olaitan Interesting thank you for that.

So are the expenses not also considered another FB, given that I won't be encountering those expenses as part of the business?

Also, does this work given that I'm not an employee, I just take dividends? And would I have to switch to being PAYG to make this work?

 

[olaitan]

@henryjoshua A director can have a car, no need to be an employee. As the FBT reimbursement reduces the taxable value of the benefit to NIL there is no need to lodge an FBT return either.

I've calculated the FBT using the 20% statutory formula method which is a catch all rate supposed to account for depreciation and running costs.

Before doing this, you should seek professional advice from your accountant.

 

[henryjoshua]

@olaitan Yeah for sure will seek advice.

What do you say to the points that @anthonyadrianbell makes though, that basically it will all be moot due to the way FBT reimbursements are charged GST on etc.?

 

[olaitan]

@henryjoshua I addressed that in my first point. The FBT basically offsets the benefit of paying the car costs from the business, but you can claim the car cost under the instant asset write off (and gst) as well so I believe there is still a benefit.

 

[henryjoshua]

@olaitan Gotcha, still trying to learn how all this works so excuse me if I misunderstood anything.

So the benefits you're talking about here then, would they just mainly be from a cashflow perspective given it seems like any financial benefit gets smoothed out one way or another?

 

[byastian]

@henryjoshua I’m not an accountant but…

I think you can claim back the GST, but for vehicles for business use obviously.

If you’re paying the cost through the business you’re paying it with before tax dollars.

Those are the two that I would think of immediately.

I think insurance might be higher if it’s for business use. Rego too I think. Not sure if these as I have never done it. I’m PAYG employee.