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For many of us a car is essential to the operation of our business. We use it to attend meetings and conferences, visit clients, deliver orders, sell our products, manage multiple business locations and even transport goods.
Because of this we can be entitled to claim motor vehicle expenses on our taxes. However, it can depend on the type of business we run and what we use our car for. So here are a few points to keep in mind to help you with claiming car expenses for your small business.
When can you claim?
If you run a small business and use your personal car for work-related duties, it can be a bit harder to determine when you can claim a deduction for car expenses.
As a general rule, if you use your car specifically for work purposes, you may be eligible to claim this as an expense. For example, if you need your car to carry bulky equipment, it would be used as a work tool and would qualify. Using your car to deliver supplies, attend conferences, or travel between two separate client offices or meetings would also qualify.
There are cases when your travel might be both work-related and private, in which case you would only claim the part that's work-related.
If your office is away from home, generally your daily commute between the home and workplace doesn't count as a work-related expense. However, if you need to carry tools along the way it would qualify because your car was used directly for work purposes.
Buying a company car
For some businesses a car, van or truck is needed as part of daily operations, which can make having a company car desirable.
If you are considering buying a company car, it is wise to talk to your accountant about the pros and cons as you will need to tread carefully with your tax obligations, particularly fringe benefits tax. It will also pay you to shop around and read the car reviews on motoring to make sure you get the right vehicle for your business needs.
Company cars and Fringe Benefits Tax
If you are the director of a business that operates through a trust or company or you work for a business that provides the use of a company car, this may be subject to fringe benefits tax. A fringe benefit is provided by the employer as an additional benefit on top of a regular salary, and employers must pay tax on this additional benefit.
If the employer or company leases or owns a car and allows an employee or director to use it privately, this would then attract a fringe benefits tax.
How can you tell if your use of the company car qualifies as private or work-related? Generally, the same criteria defined above would apply here. If the company car is housed in your garage or is used to travel to and from work, this would be considered private use. There are ways you can potentially reduce your fringe benefits tax though, like making voluntary contributions to reduce the value of your benefit, so have a word to your accountant.
These are just a few factors to keep in mind if you use a car for work purposes. In many cases you may be eligible to deduct it as a work expense. It's also important to assess the true value of a benefit such as a company car, from a tax standpoint.