Buying luxury car in business

Hi Guys,
I was hoping for some advice from the experts.
We need a vehicle and am juggling weather to buy it under my personal name or business. The cost of the car is approx $170k and is a 7 seater which based of past history would be keeping for 7-8 years. At the end of this, I would say the car value to be maybe $20k. It would be 50/50 split business/personal use.

Say I have a directors loan of the same amount owing to my company ($170k)

The pros of buying under the business is that I can repay my director loan back to the business. The business can then use this money to buy the luxury car. I understand that it can only write off $60k (being the threshold). The other benifite is that the business incurred the loss of the value of the car ($170k purchase and $20k value after 8yrs). If it were under my own name, then that’s a $150k loss of my wealth.

I understand that I have to contribute 50% towards the ‘running cost’ of the car to avoid FBT.
Finance is not an option as the company has enough money. So why pay interest on a car loan.
I understand rego and insurance will be slightly higher under business.

Is it a no brainer to buy this luxury car under the business or am I missing something?

 

do you mean 'company'? a business is an activity that someone does not an entity for tax or law.

 

To clarify, (should’ve been more clearer with my terminology) yes it’s a company which I am the sole director and shareholder.

 

What vehicle is it, sounds like a Toyota Vellfire?

 

Merc GLS 450

 

Hi Terry, any thoughts about which is better? Buying under company or personal.

 

If the company trading, if so what does it do, does it have retained earnings, why do you owe it $170k? Will you have any business use?

 

Under the operating cost method for FBT there is deemed depreciation and deemed interest included in the running costs, so your employee contribution would be fairly high, unless you have a high business use portion. Add in the fact that the employee contribution has GST on it and there will be GST on the sale when you sell it (surely it would be worth more the $20k in 7 years), then I would have thought owning it personally would be better.

What do you expect the business use % to be?

 

it’s a construction company. The earning are high, thus I take it out as a div7a loan. I estimate it will be 50/50 business use.

 

My understanding is that depreciate would be based on the LCT limit. Thus the company can only depreciate and write off $30k. There are no interest (no finance) as the company is using its profits to purchase the car.
Thus wouldn’t the contribution would be the personal usage portion of the rego/insurance/fuel/servicing etc?
Since I would be reimbursing the company for the personal usage portion of car, there should be no FBT.
Is this correct?

 

Sounds like it is worth considering and getting some advice on the company owning.

 

It would be based on the depreciation cost limit (DCL), not the luxury car tax limit (LCT)

For FBT purposes the operating costs are the actual operating costs + deemed operating costs. Interest is deemed by multiplying the (FBT) depreciated value of the car * statutory interest rate (4.52% for 21/22 FBT year) and this applies where the car is owned and even if the car is financed at a lower rate. Depreciation is deemed at a rate of 25% and the depreciation cost limit does not apply for FBT purposes. How you depreciate for income tax purposes is not relevant. Refer to Chapter 7.5 of the ATO FBT Guide for Employers.

Definitely worth getting some advice.

 

@BennEznElle mate your a legend! That guide was extremely helpful. My only concern is that my company is registered at my residential address. Section 7.1 states that "Similarly, where the place of employment and residence are the same, the car is taken to be available for the private use of the employee".
However, I will be using the operating cost method, and it states:

"The percentage of business use of a car is calculated as:

A ÷ B × 100%

Where:

• A is your estimate of business kilometres travelled by the car during the FBT year (or part-year, as the case may be)
• B is the total kilometres (both business and private) actually travelled by the car during the same period."

So my question is that having the car garaged at my home (which is also the companies registered address, does that have an impact on the percentage of business to personal?

 

Unless a (luxury) car is garaged elsewhere and records of its "non use" are maintained FBT will generally apply. Trying to fiddle the garaging rule is highly ineffective usually. esp luxury vehicles. That tends to work better for things like company pool cars etc. The statutory basis is often a better basis. eg You estimate 65% private use based on driving to and from work. However the statutory method assumes private use at 20%. No proof, no logbooks etc. The stat basis uses the GST incl "cost" of the car however where operating costs uses the same it does dimish each year and may adjust some for GST. The statutory basis locks in a flat cost for 4 years.

The ATO FBT Calculator is very helpful for comparing but its offline for a few weeks and may be back tomorrow. Just remember that the employee contribution can be funded from a dividend. GST must be added. It is a taxable supply.
And its not a end of tax year issue. The FBT year ends 31 March and is when that calc and accounting should occur. Include in March BAS.

 

This part is incorrect.
The statutory cost method uses a percentage of the vehicle’s value (20%) rather than a private use percentage.

@Aria also have a look at temporary full expensing. Your business may be eligible (criteria applies) so worth working through with your accountant / tax advisor.

That is assuming you can get the vehicle in time under the current regulations. The deadline I’m aware is being discussed with government and industry due to long delays with supply chain challenges.