Buying a new car is a considerable expense for anyone, but if you run a business and use a vehicle for work purposes you may be able to claim tax deductions either by buying it outright, or by leasing.

If you buy a car for work purposes, you might consider using the Federal Government’s instant asset write off which has been extended to cover 2021/22. The terms of this initiative allow business owners with a turnover of less than $5 billion to purchase work assets (with car purchases capped at $60,733). Trade or commercial vehicles (i.e. vans) for business use have no cost limits.

If you choose to finance the car with a loan, you can also claim the interest payments and the GST (if you are registered), otherwise this forms part of the cost of the vehicle.  The asset is depreciated and written off against your profits. Financing a car also frees up cash flow by allowing you to pay it off over several years.

However, the instant asset write-off for vehicles has some conditions:

• Both the asset and your business must be eligible for the temporary full expensing method. If a vehicle is used only for work purposes, the deduction could be as much as 100 per cent. If the vehicle is used for business and private purposes, this should be documented, and the deduction apportioned accordingly.
• The asset should be purchased, first used, or installed for use by 30 June 2022.
• For SMEs, the asset may also be new or second hand. And you can buy any number of assets, as long as they are used for work purposes, for example cars, new technology, office furniture.
• Cars are included in the instant asset write off scheme, but the car depreciation threshold is $60,733, being the maximum deduction allowed for the 2021/22 year. All expenses including interest payments on a car loan can be included in your tax deductions.
• Documents must be kept to record business and personal use (i.e. a log book with a car), and all purchase details and receipts must be kept.