In this article
- What is a Motor Vehicle for GST purposes
- Non-Car Vehicles
- GST Implications of Buying a Motor Vehicle
- GST Implications of Disposing of a Motor Vehicle
- Types of Methods to Calculate Motor Vehicle Expenses
- Deductions For Motor Vehicle Expenses
- Maintaining Records for Motor Vehicle Expenses
what is a motor vehicle for gst purposes?
A motor vehicle, in the context of GST, refers to a road vehicle powered by a motor.
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. Notably, the term ‘car’ excludes motorcycles or similar vehicles.
Furthermore, a motor vehicle, for GST purposes, 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.
Illustrative examples of such vehicles are road rollers, tractors, earthmoving equipment and graders.
Also, ownership, leasing, or being subject to a hire-purchase arrangement is necessary for the motor vehicle.
If your motor vehicle doesn’t meet the criteria for being classified as a ‘car,’ it falls under the category of ‘other vehicles.’ This category includes:
- Minivans with a capacity of 9 or more passengers
- Utility trucks or panel vans designed for carrying loads of one tonne or more.
Expenses linked to operating a utility truck don’t automatically qualify for tax deduction. To claim these expenses, you must actively use the utility truck in your business operations and are limited to claiming only the portion attributed to business usage.
GST Implications of Buying a Motor Vehicle
Now, let’s find out the GST considerations that arise when making a motor vehicle purchase and understand their financial implications:
GST Credit Claims – Vehicle Exclusively for Business Use
In most cases, you can request a refund for the GST amount included in the vehicle’s cost if you possess a valid tax invoice and meet the following conditions:
- You use the motor vehicle exclusively for your business operations.
- Your business is registered for GST.
The sum you spent on the motor vehicle should be indicated at section G10 (pertaining to capital purchases) on your activity statement.
GST Credit Claims – Vehicle Used for Both Business and Non-Business Purposes
When a motor vehicle 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 activity statement.
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 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 period, 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).
Using Different GST Calculation Methods
Based on the method you employ for calculating GST amounts, there are corresponding actions to take. When adopting the accounts method, include one-eleventh of the GST car limit (or the applicable business use proportion) in label 1B (GST on purchases).
Alternatively, if you utilize the calculation sheet method, the calculation sheet should guide you in determining the accurate value to report at label 1B.
Special Circumstances Allowing Full GST Credit on Cars Exceeding Limit
In specific scenarios, you have the option to claim a complete GST credit for the entire GST amount included in the car’s price, even if it surpasses the set 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 will not have the eligibility to claim a GST credit.
GST Implications of Disposing of a Motor Vehicle
When you dispose of a motor vehicle—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 acquired the vehicle before 1 July 2000 or 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.
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.
GST on Car Expenses
If you use a motor vehicle for business purposes, you may be able to claim a GST credit for the GST included in the cost of fuel, repairs and servicing, insurance, registration, and depreciation.
The amount of GST you can claim will depend on the percentage of time you use the vehicle for business purposes.
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.
Selling a Luxury Car
If you’re GST registered, you might need to pay luxury car tax when you sell a luxury car.
A luxury car is defined as a vehicle with a value, including GST, that surpasses the luxury car tax threshold.
The amount of luxury car tax you owe from the sale is reduced by any luxury car tax you’ve previously paid.
What is Luxury Car Tax?
Luxury car tax (LCT) is applicable to cars valued above the LCT threshold, including GST.
LCT is imposed at a 33% rate on the value exceeding the luxury car threshold. It’s paid by businesses selling or importing luxury cars (dealers), and individuals importing luxury vehicles.
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.
Types of Methods to Calculate Motor Vehicle Expenses
1. Cents per Kilometre Method for Business Car Expenses
When you use the cents per kilometre method:
- You apply a fixed rate for every kilometre driven for business purposes.
- You’re allowed to claim up to 5,000 business kilometres per car per year.
- No written evidence of exact kilometre count is required (though you may be asked to show
- proof of your business kilometre calculations, such as diary records).
- The rate considers all your vehicle’s running expenses, covering registration, fuel, servicing, insurance, and depreciation.
Rates are periodically reviewed. Currently, the rates are:
- 85 cents per kilometre for 2023–24
- 78 cents per kilometre for 2022–23
To determine your claim, multiply the total business kilometres you’ve traveled by the applicable rate.
2. Logbook Method for Business Car Expenses
To calculate the claimable amount using the logbook method, follow these steps:
- Keep a detailed logbook.
- 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 you:
- Keep the logbook intact.
- Record odometer readings at the start and end of each usage year.
Depreciating the Motor Vehicle
When you opt for the logbook method, you typically can claim depreciation, which indicates the decrease in value, for your motor vehicle.
However, this claim is applicable solely to the business portion of the vehicle’s total cost.
You might be eligible for an immediate deduction or a faster rate of depreciation through tax depreciation incentives, such as temporary full expensing.
If the vehicle happens to be a car, there exists a car limit ($68,108 for the year 2023-24) on the extent to which you can calculate your depreciation deduction.
3. Actual Cost Method for Expense Claims
You have the opportunity to utilize the actual cost method exclusively to assert your business’s motor vehicle expenses.
At its essence, this method involves you claiming expenses based on tangible receipts in your possession.
Two key situations warrant the application of this method:
- Company or Trust Setup: Regardless of the vehicle type you’re claiming for, companies or trusts must adopt this method.
- Sole Trader or Partnership Involvement: If you’re a sole trader or part of a partnership and your claims include vehicles beyond standard cars, like motorcycles or vans, this method applies.
If your vehicle serves both business and private purposes, it’s important to keep clear records to separate these uses. This helps you work out the percentage that’s used for business.
Depreciating Your Motor Vehicle
If you use the actual cost method to calculate your expenses, you can generally claim deductions for significant expenses like the purchase price of a motor vehicle over a period of time.
This process is known as depreciation or a decline in value.
Under certain circumstances, you might even qualify for an immediate deduction or a faster rate of depreciation through specific tax depreciation incentives such as temporary full expensing.
Deductions For Motor Vehicle Expenses
You are entitled to claim deductions for the following car-related expenses:
- Fuel and oil expenditures
- Costs related to repairs and servicing
- Interest payments on loans for motor vehicles
- Lease payments
- Insurance coverage premiums
- Registration fees
- Depreciation (reduction in value).
It’s crucial to employ the accurate calculation approach while claiming motor vehicle expenses. Mistaken methods can result in inaccurate claims.
Calculating Business Motor Vehicle Expenses
The calculation method you choose to determine business motor vehicle expenses varies on your business structure and the vehicle type you’re claiming for:
Sole Trader or Partnership
If you operate as a sole trader or are part of a partnership (with at least one partner being an individual), the chosen method depends on the vehicle type:
- For car expenses, you can choose between the cents per kilometre method or the logbook method (different methods can be used for different vehicles, and you’re allowed to switch methods annually).
- For other vehicle expenses, the actual costs method must be used.
Company or Trust
For businesses structured as companies or trusts, the actual costs method is the mandated approach for calculating motor vehicle expenses, irrespective of the vehicle type.
Using Motor Vehicles by Employees
Employees Using Their Own Vehicles
When employees integrate their personal vehicles into your business operations, your business can claim deductions for any motor vehicle allowances or reimbursements issued to cover their costs, including expenses like fuel.
Employees Using Business Vehicles
If your business operates as a company or trust and employees, or individuals closely related to them (like spouses), use business vehicles for personal reasons, specific circumstances arise:
- Demonstrating Business Connection: You might need to provide evidence of the expenses being linked to business purposes.
- Fringe Benefits Tax (FBT): Your business could potentially be liable for FBT.
- Tax-Deductible FBT: The FBT you pay is eligible for tax deduction.
- Deductible Portion for FBT: The part of expenses subject to FBT that pertains to private use is also tax deductible.
Claiming Travel Costs for Home-Based Businesses
In the context of home-based businesses, you can assert expenses incurred during travel between your home and various destinations, provided the travel serves business purposes.
For instance, you can claim costs tied to travel:
- To a client’s premises, particularly when you’re actively working or delivering essential documents
- For procuring equipment or necessary supplies
- To your bank for fulfilling banking needs
- To the post office, either for mailing invoices or collecting mail from a designated PO Box
- To meet with your business tax agent or BAS agent.
Different methods are at your disposal to compute motor vehicle expense claims, with the approach varying depending on the structure of your business.
Private Company Shareholders Using Motor Vehicles
When a private company offers a vehicle to a shareholder or someone closely associated with them (outside of their employee role):
- This arrangement can be regarded as either a dividend or a loan.
- Your associated motor vehicle expenses might not qualify for deduction.
Claiming Input Tax Credits in Car Insurance Settlements
The ability to claim GST credits in car insurance settlements depends on who receives payments from the insurer and whether there’s a contractual arrangement between the insurer and a repairer for vehicles covered by their policies.
In general, you cannot claim a GST credit for payments your insurer directly makes to a service provider if the insurer:
- Has a contractual agreement with a supplier to provide a service to you, and
- Directly pays the settlement to the service provider.
But, you have the ability to seek a GST credit for the payments that your insurer handles and directs towards the service provider on your behalf.
Maintaining Records for Motor Vehicle Expenses
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 for general information only. It does not make recommendations nor does it provide advice to address your personal circumstances. To make an informed decision, always contact a registered tax professional.