Buy a car as a business or as private use

Forums › Transport (cars, bikes and boats) › Buy a car as a business or as private use

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#1985160 28-Mar-2018 21:27

My mate OWNS an accountancy firm. His cars are all privately owned! He says for his work, cars is in the too complicated basket. Your work might be different.

Willuknight

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#1985170 28-Mar-2018 21:47

Aredwood: What type of vehicle are you buying? As my accountant said that the tax rules also vary depending on vehicle type and what your job is. So buying a Ute compared to a passenger car might have tax advantages for you.

Also will that $20K car be brand new or not? As sometimes there is very little extra cost to buy a brand new vehicle.

As for depreciation, Consider the effects of electric vehicles becoming mainstream. ICE powered passenger cars will massively drop in value. As lots of manufacturers either have released, or will release passenger EVs. But there is virtually nothing on the horizon as far as EV Utes or vans are concerned.

I wouldn't personally spend 20K on an ICE car right now. Although that also depends on if you have to buy a new car right now. Or would your current car do for a bit longer. And of course your driving patterns.

If you are in Auckland, Consider the proposed new petrol tax as well.

I'm buying a 2013 Nissan Leaf :) EV all the way baby.

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#1985171 28-Mar-2018 21:48

Batman:

My mate OWNS an accountancy firm. His cars are all privately owned! He says for his work, cars is in the too complicated basket. Your work might be different.

My accountant said they'd just set it up so that all I did was pay a fringe benefit adjustment at the end of the year. Super easy and I don't have to pay anything additional for them to prepare it.

Batman

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#1985206 28-Mar-2018 23:23

do you travel a lot in your work? it depends if you travel a lot in the work or not.

afe66

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#1985251 29-Mar-2018 09:03

Wasn't there a proposal during election about making EV exempt from fringe benefit tax ?

Anyone heard anything about this more recently ?

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#1985264 29-Mar-2018 09:34

Willuknight:

I'm buying a 2013 Nissan Leaf :) EV all the way baby.

IRD accepts a reimbursement cost of $0.81/km for an electric vehicle up to 5,000km for self employed people.

That's about 10% higher than the rate for petrol vehicles.

The IRD believe the total cost of ownership of an EV are marginally higher - due to the lower operating costs and higher fixed costs.

More detail here.

ehttp://www.ird.govt.nz/business-income-tax/expenses/mileage-rates/emp-deductions-allowances-mileage.html

Mike

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#1985703 29-Mar-2018 21:25

Business Car Insurance could be as low as $500. I have two examples where that is the case. Insurance Company you are currently with may consider your history of no claims for the last many years and give you good price.

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#1987879 3-Apr-2018 20:52

Just a quick correction to cadman

The mileage rate cap of 5000km has been lifted from the tax year ending 31 March 2018. It hasn't been updated on the IRD website yet, but it it has been removed from the income tax act.

Just put my two cents in as well:

Run through the numbers past your accountant. If a sole trader, you need a logbook for 3 months. If a company or trust, then you will be paying fbt. If paying fbt, then keep the purchase price as low as you can will help minimise fbt.

Cadman:
In which case if the mileage is low you'd be better off simply keeping a logbook to record business trips and reimbursing yourself at the current IRD mileage rate. It's tax free you you, the employee. Last I checked it was $0.73/km and you can use it for up to 5000km/year. Doing that instead of working out the actual cost will save you and your accountant a fair bit of time.

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#1987883 3-Apr-2018 20:59

DaMuzzMan67: If a sole trader, you need a logbook for 3 months.

Every 3 years or whenever usage changes by more than 20%.

Edit: I should have mentioned before - the 5000km cap didn't apply to reimbursement of employees either.

DaMuzzMan67

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#1987885 3-Apr-2018 21:01

Correct. :) My main point was the lifting of the 5000km threshold which could be highly benefical to many self employed people as an option for recording motor vehicle expenses.

Dulouz

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#1987966 4-Apr-2018 08:30

richms:

If its used for business then do you really want to be turning up in a 10 year old car?

@richms My business car is 14 years old and while I could afford to upgrade I don't see the point. No client has ever thought badly of me for driving an 'old' car. In saying this no client has ever asked to see it.

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#1988036 4-Apr-2018 10:05

I'm scratching my head about whether it's worth leaving my car in the business or not. It's averaging only around $5000 of expenses per year, so the business can deduct $1500 off it's tax.

I'm doing about 6000 km of business mileage a year so could pay myself (I'm an employee of my company) 6000*.73 or $4380 tax free, an effective benefit at marginal rate of $1445 - pretty much the same.

But I wouldn't have to account for anything... other than a three yearly log book.

Mind you, there's also the GST refund to account for so I guess that's effectively worth $750... my head hurts.

DaMuzzMan67

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#1988276 4-Apr-2018 16:17

Hi KryptonJohn

A few factors that would make a heaps of difference:

- You have said it is in a company. So, if it is available for private use, you should be paying FBT on the vehicle as well (an additional cost). Some accountants do a 'private use adjustment' where you the person effectively pay for the use of the vehicle to the value of the Fringe Benefit (eliminating FBT in the process).

- FBT is calculated on either the original cost or the current value of the vehicle. The lower the value, the less the FBT.

-Advantages are if you keep it in a GST-registered company you will get to claim GST on the running costs (100% of the running costs!). Also, along with the running costs that you pay out, you should be able to claim Depreciation (the reduction in value of the asset for that year). Normally, we use 30% per year for vehicles.

For your mileage rate claim - you are partial correct. The mileage claim that you put in would be added as an expense to the company's expenses. So, an extra $4,380 in expenses to reduce any income (but there is no GST on this expense). It may not be advantageous for you not to do this...

Alternatively, you can own it in your own name, keep a logbook, and claim the business percentage of running costs (and depreciation). No FBT, but you do only get to claim the business portion of costs and GST. If the portion is very high, then there will be some advantages. If it is a low business use, then forget it.

Run the numbers past your trusty accountant... Hopefully it hasn't made your head hurt more...

kryptonjohn

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#1988282 4-Apr-2018 16:25

Thanks DMM67, head still hurts, but no more than before, perhaps a little less!

Batman

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#1988283 4-Apr-2018 16:26

That's why you have accountants?

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