Car loan tax deductions are available on business vehicle finance, not on personal loans but individuals may claim some car expenses in line with ATO rulings. In the lead-up to tax time, it is important to know exactly what you and are not allowed to deduct as expenses on your income tax return.
The Australian Taxation Office (ATO) recently issued statements saying it would be cracking down on expenses with personal income tax returns. Many individuals prepare and submit their own returns while businesses usually have an accountant prepare their tax returns and this can be helpful in ensuring all expenses claimed are allowed.
Making errors on returns, even unintentionally, may lead to consequences such as additional tax to be paid or even fines from the ATO. With interest on ATO debts no longer tax deductible from 1 July 2025, avoiding fines should be a priority.
While it is important to be clear on deductions to prepare your current return, both individuals and business planning to purchase a vehicle with financing for the coming financial year, may also benefit from knowing upfront what is allowed. We clarify the allowances for both Personal Car Loans and the different types of Business Vehicle Finance to assist.
Personal Car Loan Tax Deductions
Individuals that use their private vehicle for work-related trips cannot claim Secured Car Loan repayments as a deduction on their annual return. Where a private vehicle is used for work purposes, the ATO does allow for some specific vehicle expenses to be claimed.
There are conditions for allowed deductions, as set out by the ATO which include:- you must own or lease the car; the trips must be work-related; you can’t claim driving from home to work; you must have personally spent the money and not have been reimbursed by your employer; if you receive an allowance for personal car use from your employer that money must be included in your assessable income; plus others.
Employees using their vehicle for work should review the ATO guidelines and make acceptable arrangements with their employers to ensure they are complying with the current rulings.
Salary Sacrifice Car Loan Tax Deductions
Salary sacrificing is used by employees to purchase a motor vehicle by sacrificing part of their salary with a Novated Car Lease. Individuals with this arrangement do not make the finance payments, the employer does, so no deductions by the employee would be applicable. The employer essentially owns the vehicle and covers the expenses. Fringe Benefits Tax may apply and be paid by the employer if the vehicle is also used for personal use.
With Novated Car Lease the employee may receive a reduction in income tax due to the reduction in the salary as a result of the salary sacrificing. Speak with one of brokers for more information on this type of motor vehicle financing.
Business Car Loan Tax Deductions
Business vehicle finance provides for straightforward and clear rulings on what is considered deductible. Leasing provides for fully deductible monthly payments. Commercial Hire Purchase and Chattel Mortgage allow for a deduction through vehicle depreciation and with deductible interest payments.
Businesses can then usually also claim the expenses related to running and operating the vehicle. Where the vehicle is also used for personal purposes, Fringe Benefits Tax (FBT) usually applies. The ATO offers options for calculating how much mileage per annum is for business and for personal purposes. This percentage determines the FBT payable.
If considering new vehicles for the new financial year, when deciding which is the most beneficial finance product, businesses are advised to consult with their accountant. While tax deductions are important, a key consideration is the finance product being compatible with accounting method used by the business. Leasing is compatible with the accruals method of accounting, Chattel Mortgage with the cash accounting method, and CHP may be used for businesses using either method.
If considering a change from the usual financing product used, businesses may need to change their accounting method. Changes to the method of accounting implemented by a commercial entity can only be done at the start of a new financial year. If this is something you are contemplating, it’s time to have a discussion with your accountant as to whether this is the right move for your business.
Taking on New Car Finance
With EOFY deals now available and interest rates on the way down, this new financial year may be the ideal time to purchase new vehicles with finance. Check out our current interest rates and use our Finance Calculator to work up rough loan estimates when browsing the sales.
With sale vehicles often available in limited quantities, having finance approved ahead of committing may be an advantage. Speak with us about pre-approved finance or apply now.
To discuss car loan tax deductions, speak with the motor vehicle finance experts as Jade Car Loans 1300 000 003.
DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.
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