Have you recently purchased or are you looking to purchase a new car? Maybe you have found the car you’ve always wanted or a deal you just couldn’t refuse. Whatever situation you find yourself in most people don’t understand the tax implications that come along with such a transaction.
Luxury car tax
A major tax issue that comes with purchasing a car is the impost of a luxury car tax.
A ‘luxury car’ is a motor vehicle with a carrying capacity of less than 2 tonnes and 9 passengers. It includes four wheel drives, passenger cars, station wagons, light trucks, limousines (regardless of the number of passengers).
A ‘luxury car’ does not include trucks and vans designed to carry a load of more than two tonnes, vehicles such as buses, designed to carry nine or more passengers, motorcycles or similar vehicles, unregistered racing and rally cars, prescribed emergency vehicles, cars more than 2 years old, campervans and mobile homes.
A luxury car is also a car that has a GST-inclusive value that is higher than the luxury car tax threshold ($57,446 in the 2016 financial year).
A car purchased for more than the luxury car tax threshold has a maximum GST credit of one-eleventh of the limit. Therefore in the 2015 – 2016 financial year, the maximum GST credit would be $5,224 (which is, 1/11 x $57,466).
The luxury car limit also affects the amount of depreciation you can claim on the car. In the 2015 – 2016 financial year the maximum cost base for depreciation purposes is $57,446, the excess cost over this amount in non – depreciable and in turn not deductible.
This also then has an impact on possible fringe benefits taxes payable should your entity purchase the car and you have the car made available for private use to you. Cars that exceed the luxury car tax threshold can work out to be a lot more expensive in tax than just the ticket price you paid for it.
The luxury car tax amount is not claimable in any way
On the disposal of the car there are also tax adjustments that need to be accounted for due to the luxury car limit.
If you are in the market for a car that exceeds this threshold you might want to consider if a demonstrator model is available, or one that may be slightly used. It could save you thousands in the end, beyond the ticket price.
Although the tax implications of a car purchase may not be the most exciting of topics it is important information you can be equipped with when buying your next set of wheels.
It may also pay to call us first before you go looking for a car to purchase. We have access to a company which can provide you with fleet discounts on both your purchase and your servicing.