Contents
- What is a car for GST purposes?
- GST and car purchases
- GST and car sales
- GST and car expenses
- Record keeping
What is a car for GST purposes?
For the purpose of GST, a car is defined as a motor vehicle designed to transport less than one tonne of load and fewer than 9 passengers, and excludes motorcycles or similar vehicles. The GST Act further details GST on cars.
A motor vehicle, in the context of GST, refers to a road vehicle powered by a motor and excludes road vehicles meeting both of the following criteria:
- The primary purpose of the vehicle is not linked to its use on public roads.
- The vehicle’s ability to operate on public roads is secondary to its primary purpose.
Examples of such vehicles are road rollers, tractors, earthmoving equipment and graders.
If a motor vehicle doesn’t meet the criteria for being classified as a car, it falls under the category of other vehicles, which includes:
- Motorcycles
- Minivans with a capacity of 9 or more passengers
- Utes or panel vans designed for carrying loads of one tonne or more.
GST and car purchases
GST Credit Claims – Vehicle Exclusively for Business Use (including salary packaged cars)
You can obtain a GST input tax credit for the GST included in a vehicle’s cost if you possess a valid tax invoice, your business is registered for GST, and you use the car exclusively for your business operations
The amount you spent on the car should be indicated at section G10 (pertaining to capital purchases) on your BAS.
Private use of a business vehicle by an employee can be classed as business use for GST purposes. This means that GST input tax credits can usually be claimed on the full purchase price of employee salary packaged cars up to the GST Car Limit. Fringe Benefits Tax (FBT) implications arise from this, however. See our Car FBT article for more details.
GST Credit Claims – Vehicle Used for Both Business and Non-Business Purposes
When a car serves both business and non business purposes, you typically have the right to claim a GST credit proportional to its business usage.
You should only report the portion of the motor vehicle’s cost that is relevant to its business related use under section G10 on your BAS.
If you use the accounts method to calculate your GST payments, you need to include the GST amount for the vehicle’s purchase (or the share related to business use) under label 1B.
Exceeding the GST Car Limit When Buying a Car
When you purchase a car that goes beyond the specified GST car limit, certain special regulations come into play. This limit serves as the basis for computing depreciation deductions according to the income tax regulations.
Furthermore, this GST car limit is used to determine the maximum GST credit that can be claimed. For the 2023–24 financial year, the highest allowable GST credit stands at $6,191, equivalent to one-eleventh of the limit ($68,108).
In the above scenario, it is important to keep in mind that you are required to enter only the amount equivalent to the GST car limit (or the proportion linked to business use).
Rules around GST rebate are outlined in GST Act.
Car purchases exceeding the GST car limit
In specific scenarios, there is the option to claim a complete GST credit for the entire GST amount included in the car’s price, even if it surpasses the GST car limit.
To qualify for this exception, you must use the car in the course of your business operations and fulfill at least one of the following conditions:
- You exclusively hold the car as trading stock, except when holding it for rental or leasing.
- You conduct research and development activities for the car’s manufacturer.
- You export the car under circumstances that qualify for GST-free status.
- The car is classified as an emergency vehicle.
- The car is a commercial vehicle primarily designed for purposes other than carrying passengers.
- The car serves as a motor home or campervan.
- The car is specifically adapted for transporting disabled individuals seated in wheelchairs, unless the car’s initial sale was GST-free.
Buying a Luxury Car
When purchasing a luxury car—defined as a car with a value that surpasses the luxury car tax threshold inclusive of GST—you won’t be able to claim a credit for any luxury car tax paid. This applies regardless of the extent to which you use the car for your business activities.
Leasing a Car
If you decide to lease a car, you may have the opportunity to claim a GST credit for the GST amount included in each lease payment. The credit amount is determined by your business usage of the car.
Unlike the restriction of one-eleventh of the GST car limit, there is no limit on the GST credit you can claim for the GST in lease payments.
Obtaining a Used Motor Vehicle
When you purchase a second-hand motor vehicle from an unregistered GST individual, and your intention is to subsequently sell or exchange the vehicle, you may qualify to attain a GST credit.
For vehicles that exceed the $300 mark in cost, you can secure the GST credit when you carry out the sale of the vehicle, given that your sale is considered a taxable transaction. The credit amount is determined by the lesser value between two options:
- One-eleventh of the initial vehicle purchase amount.
- The actual GST amount payable at the time of the vehicle’s eventual sale.
However, if you acquire a second-hand vehicle from an unregistered GST individual and have no plans to sell or exchange the vehicle, you are eligible to claim a GST credit.
GST and car sales
When you dispose of a car – whether by selling, trading, or transferring ownership to individuals such as company directors or other enterprises – you typically need to account for GST if the disposal qualifies as a taxable sale.
This obligation applies even if you sell it to an individual not engaged in business (a private sale).
In such cases, you generally become responsible for remitting GST equal to one-eleventh of the vehicle’s sale price.
However, no GST payment is required when you dispose of privately owned assets. For example, if you, as a sole trader, sell a motor vehicle that hasn’t been used for business purposes and hasn’t been subject to a previous GST credit claim, including GST in the sale price is not necessary.
Reporting Motor Vehicle Disposals
If you are GST-registered and you receive any form of payment (monetary or non-monetary) while disposing of a motor vehicle used solely or partially for business, you must report the payment’s value at label G1 on your relevant tax period’s activity statement.
In cases where you sold a motor vehicle but did not record it in labels G1 and 1A on your activity statement, you can easily rectify this omission in your next activity statement under certain conditions.
Motor Vehicles Retained After GST Registration Cancellation
In the event of canceling your GST registration while still possessing a motor vehicle for which you’ve either claimed or have the right to claim GST credits, you’ll be subject to an upward adjustment in the GST amount you’re obligated to pay.
This adjustment considers the vehicle’s market value and the proportion of business utilization at the time of your GST registration cancellation.
The GST payment is calculated as 1/11 of the product of the vehicle’s market value and the percentage representing business use.
Using Motor Vehicles for Financial Supplies or Private Purposes
If you’ve used a motor vehicle for financial transactions or private purposes, specific provisions come into play during its disposal.
When you sell a motor vehicle you’ve bought or used for either financial transactions only or a mix of business and private purposes, you might qualify for a decreasing adjustment. This doesn’t affect the GST payable on the vehicle’s sale but rather lessens the GST amount you’re responsible for in the tax period.
It’s important to note that this adjustment doesn’t apply under these circumstances:
- For motor vehicles bought prior to the introduction of GST on 1 July 2000.
- For motor vehicles purchased between 1 July 2000 and 23 May 2001, during which you couldn’t claim GST credits due to the GST Transitional Act.
Exchanging Motor Vehicles
When you hold GST registration and engage in a trade-in that involves a vehicle used either partially or entirely for business purposes, it’s crucial to take into account the potential GST impact.
This is because this transaction falls within the category of taxable sales.
You should incorporate the trade-in value into your activity statement’s G1 label and indicate the associated GST amount at label 1A.
Additionally, if requested, you must provide a tax invoice to the motor vehicle dealer, outlining the trade-in value and the applicable GST.
Notably, even if the traded-in vehicle was purchased prior to GST introduction, reporting the trade-in value on the activity statement remains necessary.
Motor Vehicle Disposal to an Associate
When you sell or transfer ownership of a motor vehicle to an associate for a value below its market price, you are required to calculate GST as if the vehicle was sold at its full market value.
Charitable Entities Disposing of Motor Vehicles
If you belong to a charitable institution, act as a trustee for a charitable fund, qualify as a gift-deductible entity, or represent a government school and you dispose of a motor vehicle, the disposal can be considered GST-free given certain conditions. This applies when the payment received satisfies either of the following criteria:
- The payment is lower than 50% of the motor vehicle’s GST-inclusive market value.
- The payment is less than 75% of the amount initially paid to acquire the vehicle, typically reflecting its original cost.
GST and car expenses
If you use a car for business purposes, you may be able to claim full or partial input tax credits for the GST included in the cost of fuel, repairs and servicing, insurance, registration, and depreciation.
Unless the car is used exclusively for business purposes (including employee salary packaged cars), the amount of GST you can claim will depend on the percentage you use the vehicle for business purposes vs private purposes.
For practical purposes, the business use percentage is usually calculated on the same basis as the logbook method for income tax purposes.
Logbook Method for Car Expenses
To calculate the claimable amount using the logbook method, follow these steps:
- Keep a detailed logbook for at least 12 weeks
- Determine your business use percentage by dividing the distance traveled for business purposes by the total distance traveled, then multiplying the result by 100.
- Sum up all your car expenses throughout the income year.
- Multiply your total car expenses by the business use percentage.
Ensure you keep the following records:
- An electronic or pre-printed logbook, readily available from stationery suppliers.
- Proof of actual fuel and oil costs or odometer readings, which are used to estimate fuel and oil usage.
- Evidence of all other car related expenses.
Maintain the logbook for a continuous period of at least 12 weeks, reflecting your travel patterns throughout the entire year. This representative timeframe can serve as the basis for calculating your claims over five years, provided your business use percentage does not substantially change.
Record keeping
The records essential for your business’s motor vehicle expenses vary according to how you calculate your claims. Generally, you’ll be required to retain:
- Information about the distance covered for both business and personal purposes
- Receipts for expenditures like fuel, oil, repairs, servicing, and insurance coverage
- Documents related to loans or leases
- Tax invoices
- Vehicle registration documents
- Details outlining how you arrived at your claim.
If you’re a sole trader or part of a partnership using the logbook method, you’ll need to maintain extra records.
Ensure you hold onto these records for a period of five years.
This article is general information only and does not provide advice to address your personal circumstances. To make an informed decision you should contact an appropriately qualified professional.