Buying a car is fun because you buy what you love. But it’s not always convenient on the wallet. You cannot skip paying tax for the vehicle you are buying. But there are always ways to reduce it!

Here, we have listed several of the most tax-effective ways to buy a car in Australia. Reducing the amount of money, you invest here will help you with hard-earned bucks. Work hard but don’t forget to work smart!

Tax-Effective Ways to Purchase a Car in Australia

If you live in Australia, you already have many expenses and might want to get the benefit of less spending a little if you can.

And when you plan on buying a car or vehicle in Australia, you can reduce a little tax from the entire amount.

There are a few ways to deduct the tax and make the price of the car more bearable. We have listed the ones that car owners in Australia love.

1. Chattel Mortgage for Car Purchase
2. Finance Lease for Car Purchase
3. Novated Lease for Car Purchase

And in the following section, we have described the details of these methods. The method and how it works, along with the tax benefits and who should get it, are mentioned below. These methods work for both new and used or second-hand vehicles.

Chattel Mortgage

It is a commercial finance product. In this process, the financier or the investor lends the money to the customer to buy a car.

Just like any other loan process, the customer repays the loan regularly. Though the car's ownership is in the business's hands, the financier or the lender has a share.

The lender has a mortgage over the car. And this mortgage stays this way until the load is paid.

Tax Benefits in Chattel Mortgage

We recommend a chattel mortgage as one of the most effective ways to buy a car in Australia because of the tax benefits. Check out the tax benefits of a chattel mortgage to know how it is effective for your purpose.

• There is a tax deduction for interest payments in this process. Here, as a tax deduction, you can claim the interest payments on the mortgage.

In this case, you must ensure you are eligible to claim the interest payment. If you are, then you are free to claim the interest charges. It can be done on the next annual tax return.

• The process will give you the benefit of the tax deduction for depreciation. A chattel mortgage allows you to take legal ownership of the equipment from the time you purchase it.

In this case, you are going for the abrupt asset write-off. With this, you can claim the depreciation amount. The amount or the value of the car or anything you buy will lose over time- and this is where you can get the benefit.

Without getting it gradually over a multiple-years period, you can get the tax deduction money in one hit.

If the vehicle purchase is the same as one or more than the prompt asset write-off threshold, you can put this in your business asset pool.

And through this, you can also go for a gradual depreciation tax deduction every year.

• The chattel mortgage also allows you to settle for the benefit of GST on the initial purchase. Yes, you can claim the GST paid on the initial purchase of your car.

This will work as an Input Tax Credit. However, to enjoy this benefit, your company should be a registered company for collecting Federal Government GST.

Worry-free

Also, it would be perfect if you made sure that it is properly done on the Business Activity Statement of BAS of your business.

Should you Get it?

If you are a sole trader or own a small business, the Chattel Mortgage can be a brilliant way to buy a car while limiting the tax.

The same goes for partnership businesses using the cash method of accounting. Usually, GST applies to the purchase price of your car or any vehicle.

It means that your business can claim it back on that price upfront. However, this does not apply to balloon payments or other repayment methods.

Finance Lease

Among the other tax-effective vehicle finance, this one is also one of the ideal ones. In this type of finance, you, as a customer, can enjoy a commercial car or any other commercial vehicle as an opener.

In short, you will have ownership of the commercial vehicle or car. But in technical terms, the financier will own the car.

And only when you finish the lease term will the financier lose his ‘ownership’ in every manner. Once you make the necessary residual payment, you can own the car in every paperwork.

Tax Benefits of Finance Lease

Here are the tax benefits of a finance lease that will tell you why we have selected this method for you. Take a look.

• As you go for the finance lease, you can enjoy wireless rental payments. And for the lease rental payments, there are tax deductions available.
• In this process, GST is only charged on the monthly lease rental. At the end of the lease, the GST is charged on the residual value.

For this, once again, you have to be registered for GST. And if you are, then they can claim some GST contained in the lease rental and residual value.

They can sometimes claim all the GST contained in the lease rental and the residual value. They might claim it as the input credit on their next Business Activity Statement.

Should you Get it?

With the help of a finance lease, you can preserve the working capital of your business. Here, there are fixed payments, so you can also settle for worry-free cash flow management.

This is a good deal for you if you are a sole trader. You can also apply for this if you are in partnerships or have a company registered for GST.

You can easily claim back the GST every month. And while doing so, you don’t need to have the ownership of the asset technically.

Novated Lease

With a novated lease, you can buy a car in the most tax-effective way. In this process of vehicle financing, salary packaging is used.

Technically, the employer will be the one paying for your car lease. Besides this, car running costs will also be paid by the employer. But how?

Well, the employer will pay them out of your salary package. The process will go through a neat combination of pre-tax and post-tax salary deductions.

You cannot enjoy this vehicle financing for your business vehicles. Instead, this works for the employees.

Purchasing a new vehicle can cost you so much if you suddenly want to pay the entire amount.

But with a novated lease, you can purchase the new vehicle but in a more tax-efficient manner.

Tax Benefits of a Novated Lease

Tons of people are getting novated leases for their cars or other vehicles for personal use. And that already clears up the benefits. But besides this, we would like to snow you on the major tax benefits that a novated lease will provide you with vehicle financing.

• If an employer goes for a novated tax, they will undergo an income tax saving situation.

Yes, if you get a novated tax for your car, the car’s running cost will be paid with a combination of pre-tax and post-tax deductions. This will eventually lessen the taxable income- that’s effortless maths.

And in this process, you can effortlessly reduce income tax significantly and increase the take-home pay too.

• This method is also helpful for GST-registered employers. If you are a GST-registered employee and you get a car through a novated lease, then you can claim the GST as an input tax credit before you sacrifice the repayments from the lessee’s wages.

You might see GST savings regarding your vehicle’s operating cost, including the service, fuel, maintenance, and much more.

Should you Get it?

Sometimes, you will see people telling you that novated lease is for the high flyers. Well, that’s a misconception. This type of financing suits a wide array of vehicle buyers and users.

The amount of salary you are earning is not important here. If you are in a job with a modest salary, it will reduce the taxable income, which means that you have to pay less tax than you did before.

Apart from this, the method is free from worry if you are a car owner. It is very convenient and affordable to buy a new or used car. Write-off Scheme

If you have a business with an annual turnover below $500, you can claim deductions for $150000.

This works under the asset write-off scheme. You can claim this whether you are purchasing a new car or equipment or a used car, equipment, or asset. You can make claims for purchasing any equipment.

Also, you can claim the deduction for multiple assets. Here, you need to ensure that the cost of the individual asset should be lower than the applicable threshold.

Redeem it for purchasing a car or any tool you need- you must certify that your business follows these rules. Before you can claim the deduction in a year, the company needs to use the asset.

The process is, no doubt, one of the most cost-effective ones so far. But yes, there are lines you need to remember.

The asset’s purchase date must fall in the correct period if you want to claim the deduction.

Your claim relies on the applicable threshold to your company and your GST status- as we have mentioned above. In short, it depends on the business threshold, the tax status, the asset’s purchase date (must be within the right period), etc.

For more information on the asset write-off scheme, you can check out the website of the Australian Taxation Office; all the details are mentioned there.

Buying a Car with ABN

You might have heard that buying a car with ABN is more convenient. Don’t think it’s a misconception because it’s true.

Yes, you can buy a car with ABN, which will be convenient in your wallet. In this case, you should have an ABN and also, and you should be registered for GST.

If you have both, you can pay less money by claiming GST credit for the incorporated GST in the car’s purchase price.

Buying a Car Tax-Deductible

Sometimes, your plans are not to buy a car for personal use. Instead, you might want to buy a car solely for business purposes.

In this case, you can claim a GST credit for the amount of GST added to the price of your car.

But when it comes to a vehicle you will use for your business and personal use, claiming GST is a little complicated.

Then again, you can still claim it. In this situation, you can claim a partial GST credit for the amount of GST added to the price of your car.  

Wrap Up

We have described all the tax-effective methods you can use while buying a car. While buying a car is expensive and puts much stress on your mind, ensure you release a bit of it by keeping your wallet heavy.

Among all the methods, the ideal way to reduce the tax is to go through your small business.

There are other ways to reduce the tax a little more! So, don’t forget to talk to a tax specialist before you invest your money.