Structuring Your Car Ownership​

We all want a brand new car and the car salesman agrees we need one, however, being aware of the small differences in how you finance the purchase can significantly change your tax and GST implications. 

Should I pay cash or finance the purchase?

Paying cash outright for the car is the simplest method of funding the purchase and means that there are no monthly payments or interest to worry about.  However, if you don’t have a lump sum of cash available you will need to look at finance.  Many people who can afford to pay cash still choose to use a finance method as there are often better uses for the cash that pay a higher return than the interest you pay on a loan.
If you choose to borrow to finance the loan there are a number of options available.

Car Loan

A secured car loan allows you to take ownership of the car at the time you purchase it.  The finance company takes an interest in the car via security (to cover default on the loan). Once the loan is repaid the security is removed.  Assuming you are using the car for business use or in the course of your employment you can claim the interest and depreciation as a tax deduction (based on business log book percentages).

Home Loan

It can be tempting to draw down on equity in your home via your mortgage to fund your car purchase as the interest rates are lower. However, you need to consider the repayments are now spread over a longer period (e.g. 20 years), also you can lose any tax deductibility on the interest as you mix deductible and non-deductible purposes.  If you are planning on financing the purchase then a separate loan or other financing option is preferred.

Finance Lease vs Operating Lease

Broadly speaking, an operating lease will finance the vehicle without transferring the ownership, whereas under a finance lease you will take ownership of a vehicle, similar to a hire purchase. The overall costs are very similar over the life of the lease, however the income tax, GST and FBT implications differ.

How can William Buck assist?

As you can see there is not a ‘one type fits all’ option and we urge you to get advice before entering into any arrangement to ensure the option is the best for you and your personal circumstance. 

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