There are basically two types of working vehicles, those owned or driven by business (small and large business) and those driven by employees for a business. The latter often do not get a full and proper claim on their vehicle expense.
In fact, quite often in some business sectors they get practically no claim, or in others, are dangerously overclaiming.
The users over claiming, open themselves up for a possible audit by the ATO. This can be harrowing and the ATO have the advantage of new technologies on their side, such as toll cameras and fuel records, that are connected to bank accounts. Fudging the figures can become very costly.
The non-claimants usually are either getting poor advice or just don’t know how much they can claim.
What are the answers?
The one quick fix for both of these is to put your vehicle and all of its operating expenses into what is termed an ‘Operating method’ novated lease arrangement. This method was the original form of salary packaging where a user would measure the business use of their vehicle and establish a percentage of use from a log book. They would keep the log book for three months and then use the ratio established between business and private use for the balance of the lease.
This process still applies if you want to have an ‘Operating method’ novated lease and you use your vehicle more than 50% for work. It is a very effective way of getting the maximum tax benefit for the vehicle and all operating costs and not getting yourself into trouble for overclaiming.
- You talk to the leasing company consultant and they assess your work use and the type of vehicle
- They will get pricing for you on the vehicle or you can get pricing yourself, or both
- The leasing consultant will set a business / private ratio based on assumptions made and work out your repayments that will be made on your behalf directly from your employer
- You will sign a lease document agreement and your employer will sign a commitment to make the payments direct (this is just the same as splitting your pay into two and paying your vehicle lease with one and the balance to you)
- You will get your vehicle and fuel card.
- You will keep a log book for 3 months recording the use
- You provide that to your accountant for assessment and he will then provide you with a declaration of your ratio of use.
- If the business use is more than you and the leasing consultant estimated, then the lease will be adjusted in your favor
- You then use that ratio for the balance of your lease
- You get all of the tax savings in every pay cycle and you don’t have to claim vehicle expenses at the end of the financial year.
FBT FREE VEHICLES
For those of you that use a utility or van for work, the ATO make it even simpler.
Most utilities and all vans are 100% FBT tax-free if the primary use is work.
The ATO has a list of all of these complying vehicles on their website, or your fleet consultant can give you advice on which one is compliant.
With 100% FBT free vehicles, if your primary use is work and you provide a letter from your accountant to that effect, then you do not have to keep a log book and you can go to the maximum claim benefit.
This benefit on vehicle finance and operational costs are so significant you will find that the tax benefit to you almost pays for the vehicle.
Our advice is that the best way to make sure you are claiming enough or not claiming too much on your vehicle and its expenses if you are employed under the PAYE tax system, is to talk to a leasing consultant and they can make it very easy for you to maximize your vehicle claim to the letter of the law.