With the end of the year approaching, many of us start thinking about upgrading our vehicles. December often feels like the right time to make a move, especially when dealers are pushing end-of-year offers, and you’re reviewing your tax position for the coming months.
If you’re weighing up whether to buy or lease a vehicle through your practice, you need clarity before you commit. The rules around mixed use, deductions and structure can make the decision feel bigger than it needs to be. Here’s what you need to know.
Start with how the car will be used
Your decision hinges on this. If the car is mostly for personal use, buying it personally can keep things clean and reduce compliance work. You can still claim deductions using either:
- Logbook method
- Cents per kilometre method
If you use the vehicle for business as well as personal errands, things get more complex. Once a car sits inside a company or trust, every dollar spent on it becomes part of your tax position.
The catch is Fringe Benefits Tax. When a business-owned car is used privately, the ATO considers that a benefit. Unless you track actual use with a proper logbook, private use is often deemed at 20 percent of the car’s original cost. With higher-priced cars, that percentage can outweigh the tax benefit of holding the vehicle inside the entity.
This is why mixed use matters more than most practice owners realise.
Buying a car through your practice
Buying gives you control. You own the car and you decide when to upgrade. You can also depreciate the vehicle up to the ATO’s cost limit, which currently sits at $69,674.
The upside:
- You can claim deductions for interest, running costs and depreciation
- It becomes a business asset
- You can sell it whenever you want
The downsides are associated with higher-value cars. The deemed private use percentage can make the deduction less attractive. You also carry all running costs yourself, and you tie up cash or borrowings in a depreciating asset.
Leasing a car through your practice
Leasing can feel easier, especially if you want to avoid high upfront costs. You make monthly payments and hand the car back or roll into a new lease at the end.
Benefits include:
- Lower upfront outlay
- Predictable repayments
- Easier upgrades every few years
- Potential tax deductions for lease payments and running costs
But car leases also come with limitations. You don’t own the vehicle, you might have distance limits, and you may face early termination fees. And for some cars, your private use can still trigger Fringe Benefits Tax.
How your entity structure influences the decision
Company and trust structures can change how tax deductions work when it comes to buying or leasing a vehicle through your practice. They also determine how FBT applies and how private use is handled. It’s important to note that a structure that works well for one doctor or dentist might not suit another.
This is where you should pause before signing anything. What looks good on paper can shift once you apply it to your business structure, cash flow, and personal tax position.
What Amalgam can do
We work with dentists and doctors every day, so we see how different choices play out in the real world. We’ll look at your structure, your expected use and your tax position to help you work out what’s actually better for you. Sometimes that means buying. Sometimes it means leasing. Sometimes it means buying personally and claiming what you’re entitled to.
We don’t sell cars or finance. We focus on tax and accounting. Our job is to help you avoid surprises and set things up properly from day one.
If you’re thinking about buying or leasing a vehicle through your practice, give us a call on 1300 604 330 or send us a message. We’ll walk you through the options so you can make a clear, confident decision.
