Tax Efficient Vehicle Ownership

 

Should company own the vehicle I use – or should I own it in my own name?

We often field this question. There is no one size fits all answer. The most tax efficient conclusion may differ depending on circumstances such as the value of the vehicle, the running costs, the availability for private use – and the actual private use.

I will provide two worked scenarios using a range of variables to illustrate some of the differences. In each example I’ll calculate the after tax cost for:

1. Owning the vehicle in the company; versus
2. Owning the vehicle privately and receiving a tax free reimbursement for business use.

In each of these scenarios, annual running costs of the vehicle is $8,500, depreciation on a straight line basis is 21%, the vehicle is used 80% for business and 20% privately by kilometre – and an FBT rate of 49.25% applies. 

Scenario One – A low cost vehicle ($28,750 inc GST) which is available two days per week for private use.

In company ownership, the cash cost net of tax in year one is $29,589. This reduces to $4,589 in future years. 

In private ownership, the cash cost net of tax in year one is $33,355 reducing to $4,605 in future years.

Under these circumstances, it is clearly more cost effective for the company to own the vehicle and pay FBT for the days the vehicle is available for private use.

 

Scenario Two – A higher cost vehicle ($97,750 incl. GST) which is available 7 days per week for private use.

In company ownership, the cash cost net of tax in year one is $94,092 reducing to $9,092 in future years. 

In private ownership, the cash cost net of tax tin year one is $99,109 reducing to $1,359 in future years.

Clearly under these circumstances owning the vehicle privately and receiving a tax free reimbursement of actual expenses would be the most tax efficient option.

As illustrated above, no two situations are the same.  The above examples assume a one shareholder employee situation.  However, the variables and outcome will change again with the introduction of a second, third or even fourth shareholder.  To get the best outcome you should sit down with your chartered accountant to evaluate the options.  If you would like to discuss your situation with Elevate CA we can work through your options to arrive at the most tax efficient structure for your vehicle ownership.

 

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