Of the 20 million cars on Australian roads, more than 4 million are used for business and commercial purposes (ABS Data, 2021). Van, utes, trucks and cars are a permanent part of the Aussie business landscape.
But are business owners maximising their write-offs and tax deductions?
Vehicles can be a common tax trap. Without the right knowledge of the various deductions and thresholds, chances are business owners are paying more tax than they should or (as is common among busy business owners) making incorrect deductions.
If you own and operate commercial vehicle as part of your business, this case study will help you understand the various deductions available to you.
Related: Download our complete guide to maximising your commercial vehicle deductions
Grass is Greener Landscaping is a small landscaping business in Melbourne. The owner, John Jenkins has been in business for three years and primarily provides landscaping and gardening services to residential and commercial clients. John owns a ute that he uses for transporting equipment, tools, and materials to job sites. As the end of the financial year approaches, John needs to maximise his vehicle deductions to minimise his tax liability.
Vehicle Details
Make and Model: Toyota Hilux ute
Purchase Date: January 1, 2022
Total Cost: $30,000
Usage: Primarily for business purposes, occasionally for personal use
John can claim a range of vehicle-related deductions to reduce his tax liabilities.
Depreciation
John can claim a portion of the cost of the ute as a depreciation expense over its effective life. The cost is spread out over several years, which helps reduce his tax. The depreciation rate depends on the vehicle’s type and usage.
Interest on Loan
If John financed the purchase of the ute with a loan, he can claim the interest paid on the loan as a deduction, provided the vehicle is used for business purposes.
Operating Expenses
John can claim operating expenses related to the ute’s business use, such as fuel, maintenance, repairs, insurance, and registration fees. He should keep detailed records of these expenses, including receipts, to substantiate his claims.
Leasing Costs
If John leased the vehicle, he can deduct the lease payments made during the financial year. However, deductions might be limited if the vehicle’s value exceeds certain thresholds.
To maximise his deductions, John should take the following steps.
Review His Expense and Deduction Method
Depending on John’s business structure, different recording methods are available to him (logbook, cents per kilometre, actual costs). Understanding which method offers the most possible deductions with the least aministrative burden is essential.
Claim All Eligible Deductions
John should ensure that he claims all eligible deductions, including depreciation, operating expenses, loan interest, and leasing costs, to maximise his tax benefits.
Maintain Accurate Records
John should diligently track and document all expenses related to the ute’s business use, including fuel receipts, maintenance invoices, and insurance premiums.
Plan for Future Purchases
John should keep in mind the potential tax implications when considering future vehicle purchases for his business. Choosing vehicles with higher business use percentages can result in greater deductions.
Consult a Tax Professional
Given the complexities of small business taxation and vehicle deductions, John should consult a qualified tax professional who can provide personalised advice tailored to his business situation.
Need help maximising your business deductions? We offer 24/7 access to a team of accountants and bookkeepers for a fixed monthly fee. No hourly billing. Call us to find out how we can support your business on 1300 823 040.
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