ATO sets its sights on tax-evading car owners
Tax evaders are being put on notice as the tax office prepares to get hold of car registration records for about 1.5 million Australians.
The Australian Tax Office (ATO) is set to obtain the mammoth haul of registration and vehicle purchase records to check them against existing records, including whether a vehicle is considered a company car for tax purposes.
Have a small business and not sure if your car should be in your personal name or the company name? Here's what you need to know.
On the hunt
The ATO is getting motor vehicle registration for registry data for 2019-20 through to 2021-22. As stated in its policy notice, the data-matching program will weed out those at risk of not complying with their tax or super obligations.
Among other things, it will "identify and address taxpayers buying and selling motor vehicles who may not be meeting their obligations to register and lodge returns (including activity statements) and ensure the correct reporting of income and entitlement to both deductions and input tax credits".
This means that the records associated with a car used for business purposes, be it under a company name or your own name, need to be squared away.
Buying under a personal name
"If you choose to register the car in your personal name you can still claim a tax deduction on the car expenses where the car has been used for business purposes," says Coco Hou, managing director of Platinum Accounting Australia and Platinum Professional Training.
"There are two methods to claim income tax deductions, which are the 'logbook' method and the 'cents per kilometre' method."
Hou says the logbook method can produce a more beneficial tax outcome, but you'll need to maintain a 12-week continuous log book every five years and prepare calculations annually.
With the cents per kilometre method, you can claim a maximum of 5000 kilometres using a set rate of 68 cents per kilometre travelled for business purposes, however, this depends on the engine capacity of your car. The maximum deductions using the cents per kilometre method is $3400 per annum. Unless you are GST registered you cannot claim GST on the purchase or running costs of the car.
Purchasing under a company name
"If a car is purchased in a company name, the company can claim 100% of the annual running costs, depreciation and interest costs on the vehicle, however, if the vehicle is used for private purposes, fringe benefits tax (FBT) will need to be taken into consideration," says Hou.
Calculating the tax deductions of a company car is done through either the statutory formula method or the operating cost method.
"The deemed private usage of a car using the statutory formula is currently 20% of the cost price of the car, or 33% if the car has been owned for four years."
Whether this is cost-effective comes down to the purchase price of the car. FBT costs will outweigh the benefits of the car deduction if the car purchase price is high.
"If the car is used primarily for business reasons, a better tax result can be achieved by employing the operating cost method. By keeping a valid 12-week continuous logbook, you can work out a true depiction of the annual operating costs of the car and reducing the total amount of the proportion of private kilometres travelled compared to the total kilometres recorded in the logbook."
Goods and services tax (GST) can also be claimed on a business car's purchase price, lease costs and running costs. But if it's a sometimes business and sometimes personal car, you'll need to be up to date with the log book.
"If the car is used privately, similarly to the operating cost method, you will be required to keep a 12-week logbook to claim the business-use percentage of the GST paid for the car and car-related costs," says Hou.