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When can your car reduce your tax?

Wouldn't we all like to pay less tax?

You might be able to use your car to reduce your tax. Talk to your accountant about how this applies to your specific situation.

You may be eligible to use your car to reduce your tax if:

Your employer offers salary packaging for cars
You use your car predominantly for business
You're a business.

Salary packaging for cars

It is becoming increasingly common for employers to offer salary packaging for vehicles. This is attractive because it increases employee benefits without a corresponding increase in remuneration costs for the employer.

Salary packaging for cars is typically done via a Novated Lease, which is like a standard car lease except responsibility for making the lease payments is taken on by the employer ("novation").

The lease payments (which can include other car costs like maintenance and insurance) are made from an employee's pre-tax salary, having the effect of reducing their taxable income, and therefore the tax paid. Fringe Benefits Tax does apply and salary packaging a car is not equally beneficial for all employees.

Read more about novated leasing in Considering a car lease.

Use your car for business

If more than 50% of your car's use is for business purposes and you're not currently claiming this in your tax, speak to your accountant.

Eligible business use includes driving to meetings and appointments. A typical employee driving to and from work is everyday is not considered 'business use'. You may have to sign a Business Purpose Declaration

Car finance products that can be used:

Car lease
Hire purchase
Chattel mortgage

Read more about these products in Car finance options: an overview

You are a business

There are a range of different car finance options that are specifically designed for businesses, however the appropriate type of car finance is dependent on the way the business's financials are structured and an accountant is best placed to give advice on this.