How To Maximise Savings Buying Cars For Business

If your business is in the market for purchasing a car, you want to get as much value for your purchase as possible. The one way to maximise savings when buying cars for business is to explore all the tax advantages and cash flow neutral options when it comes to financing your car. With over 90% of all new car sales purchased with some kind of finance according to ASIC, it makes sense to use your business to get all the incentives possible.

Chattel mortgages and hire purchases

A chattel mortgage or a hire purchase is a business finance package that helps your business purchase a car without tying up your cash flow.

Savvy Managing Director and business finance expert Bill Tsouvalas explains how both work, saying “A chattel mortgage and a hire purchase are functionally the same kind of loan, with one major point of difference – where ownership lies. When you take out a chattel mortgage, you take immediate ownership of the car. In a hire purchase, ownership stays with the lender. This makes a difference in your accounting, whether it’s an asset purchase or operating expenses.”

In both types of loans, a business (provided the car is for more than 50% business use) can finance more than the value of the car, to pay for registration, insurance, and other on-road costs over time. Both can be structured with balloon payments.

The meat of these types of loans are the tax incentives. “Each business can claim the GST paid, the depreciation on the vehicle, and interest,” Tsouvalas says. “Or, these are passed on by your lender if you are in a hire purchase arrangement.”

Novated Lease

Novated leases are a cost-effective way to incentivise employees or to gain access to vehicles to power your business. A novated lease is a financial arrangement between your company, a financier, and an employee to acquire a car through a lease agreement. The novated lease is arranged as part of a salary package. Your company deducts repayments from their pre-tax earnings and your employee is bumped into a lower tax bracket, therefore saving on tax. At the end of the lease, your employee can pay the residual value owing and buy it outright . They can also choose to lease another new car and sell the old one.

Tsouvalas says it can increase employee loyalty and even add to the bottom line. “If your business needs cars to meet clients or suppliers, a novated lease gives your employees a solid incentive to do a good job. They get more take home pay, get access to a new car, and your business has acquired a performing asset without having to sacrifice any additional cash flow.”

Better yet, most businesses and their employees can access significant discounts by buying as fleet buyers, not individuals.

 Tax incentives

The most common tax incentive is the instant asset write-off offered by the ATO, which covers up to $30,000. Businesses can also access accelerated depreciation rules with the ATO, known as the Backing Business Investment scheme. You can find out more about it here.

“Businesses that buy their car through a chattel mortgage or hire purchase may also be eligible for the fuel input tax credit,” Tsouvalas says.

 Talk to your broker and accountant

To make the most of savings in buying cars for business, be it a chattel mortgage, hire purchase, or novated lease, it’s best to speak to your broker and accountant to see which method is best. “Getting it right the first time is worth its weight in gold – talk to an expert to make sure you’re on the right track.”