Purchasing a Car - Important Tax Considerations for Family Day Care Educators
July 02, 2015
A number of our family day care clients seek our assistance in making some of the important buying decisions. The most common question has been purchasing a car for the family day care business, along with queries regarding small business tax concessions
While most of our clients have been educated on the availability of tax deductions for the purchase of the vehicle and also for ongoing running costs of the vehicle such as fuel, service and maintenance etc, there are various other considerations that you need to be aware of before purchasing a vehicle for your business.
According to the tax office, if you use a motor vehicle solely in carrying on your family day care business and you're registered for GST, you’re generally entitled to claim a GST credit for the GST included in the price of the vehicle, provided you have a tax invoice. If you use the motor vehicle for both private and business purposes, you’re generally entitled to claim a partial GST credit based on how much you use the motor vehicle in carrying on your business.
You can buy a vehicle by paying cash up front for the full purchase price, through a personal loan or chattel mortgage, hire purchase agreement or through leasing. What you need to know is each of these methods has different tax consequences if you are registered for GST and also with regard to claiming depreciation. For an instance, the simplest method, if you pay up-front with cash for your purchase, you can claim the GST on the full purchase price of the car at the time of your purchase and claim depreciation over a number of years.
You need to apply the best method that suits your individual circumstances. For example, buying a car through a principal increase to the existing mortgage may be the best option for one educator while for another it would be the best to go for a leasing agreement.
As Announced in the recent federal budget 2015, the Australian government has greatly expanded accelerated depreciation for small businesses. This law now allows you to immediately deduct assets that cost less than $20,000, including motor vehicles.
If your motor vehicle is valued at $20,000 or more and that cannot be immediately deducted, it can continue to be placed in the small business simplified depreciation pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools). From July 1, 2017, the thresholds for the immediate depreciation of assets and the value of the pool will revert back to existing arrangements.
It is important that you consult your accountant to discuss your situation and make the best buying decision that suits your individual circumstances.