Hmm. Cars. Wonderful things.
But when the dog has run out of seat belts to chew, when the kids have thrown up over every inch of the interior, when the engine drips more oil than an Italian playboy in summer and when it whines in first gear louder than a Lada, there isn't a better time to drop it off at the wreckers and buy a new one.
Buying a new car for a business is more interesting than one just for the family. For a start, there's the GST refund on the purchase price, there's depreciation, there's the GST and tax breaks on the cost of petrol and fluffy dice. There are also a lot of traps and some hidden taxes.
I'm tempted to write up a car-buying recipe but there are as many ways to buy a business vehicle poorly as there are to do it well so the ingredients all need to be qualified by, "on the other hand" cautions. So, here's a general look at the decisions you face and, needless to say, the advice you need to seek.
There's all sorts of urban legends about how long you need to keep a log book of your driving activity and what information you need to put into it. For a start, if you are an employee in your own business and the business buys you a vehicle then chuck the log book away – drive the thing and the company pays for the lot, irrespective of whether your driving is private or for the business. The down side? You pay fringe benefit tax. It treats the car as a benefit and taxes you (or your boss) on the value.
The more you pay for the car the more fringe benefit tax you owe. So buy a cheaper car and reduce the fringe benefit tax but get a lower GST claim on the cost and lower depreciation in actual dollars. See, it's not simple.
You can avoid fringe benefit tax altogether by having an employee agreement – documented and strictly enforced, of course, that states that the employee can't use the vehicle for private use. Turn up at the IRD annual picnic, just to be friendly, in a vehicle on which this 'no private use policy' is supposed to be in place and don't be surprised if someone in an official tax position pays you a visit next week.
Part of this deal, to exempt yourself or your boss from fringe benefit tax, is that the vehicle can't be a nice car. Daimlers, Mondeos and Mazda saloons are out. Instead, get a work vehicle, a station wagon, a van – anything that's not designed exclusively for the carriage of people and splatter your company name across its sides. You'd better get someone like me to check out the written agreements and policy about no private use – at all, not even if it's a nice Sunday and you want to take the kids fishing.
Maybe you don't do much business mileage and you don't want to be tied up in fringe benefit tax payments or maybe the thought of never using the vehicle for private use just gets to you – even if it is a clunky work van. IRD has a recipe for you too.
In this mix, you treat the car as your own, not the firm's, and instead of hoarding dates, places and receipts, you keep a record of the business trips made in the vehicle and claim an expense for each kilometre for all business travel. The AA's rates for the cost of running a car are accepted by IRD. For example, they calculate that a car costs 73 cents per kilometre to run. You need to talk to me to get the exact rates as there are different ones, or chase AA. But just think for a moment. From many parts of the Hutt Valley, a return trip to Wellington each day to work is around a $40 - $50 expense daily. There's a lot of expense and GST tied up in these cars so do yourself a favour and do it right.
You can lease the car from a motor dealer, never own it and pay a monthly fee, claiming a tax advantage from the fees. You can catch the bus. What am I saying?
Talk to me.
Posted on Fri, 1 September 2017
by Shawn O'Grady