Company Car vs Personal Car: Which Is More Tax Effective?
Posted 23 Sep
Posted 23 Sep
For many small business owners, a new car is both a practical business tool and a significant financial commitment. One of the first questions we are often asked is: “Should I buy the car through my company, or should I own it personally?”
The tax outcome is not simply determined by whose name appears on the registration. A company-owned car may allow the business to claim eligible running costs and decline in value, but private use can create a fringe benefits tax (FBT) liability. A personally owned car can be simpler in some circumstances, particularly where business use is limited, but the way deductions are claimed depends on your business structure.
In this article, we explain the main tax considerations when comparing a company car vs personal car, including deductions, GST, FBT, logbooks, electric vehicles and the questions to consider before choosing how to own your next vehicle.
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The key point There is no single option that is always more tax effective. The best result depends on your entity structure, business-use percentage, private availability, FBT consequences, GST registration, vehicle type and purchase price. The decision should be modelled before the vehicle is purchased or financed. |
Where the business owns or leases the vehicle, it may generally claim eligible business-related costs such as fuel or charging, registration, insurance, servicing, repairs, interest or lease costs, and decline in value, subject to the tax rules that apply to the entity and vehicle.
If the business is registered for GST, it may also be entitled to GST credits on the purchase and running costs to the extent the acquisition is creditable. However, special limits can apply to cars above the relevant car limit, so the purchase price should be reviewed before assuming the full GST amount is claimable.
The trade-off is that private use can bring FBT into the picture. A car fringe benefit can arise when an employer-owned or leased car is used privately by an employee or is available for their private use. For a director who takes the company car home, this is an important issue to review.
For a standard passenger vehicle, the taxable value of a car fringe benefit is generally worked out using either the statutory formula method or the operating cost method. Under the operating cost method, a valid logbook can be particularly valuable because the taxable value is linked to the private-use percentage of the vehicle.
This means a company car with high private use may not be as tax effective as it first appears. Conversely, where business use is high and good records are maintained, the operating cost method may produce a better FBT outcome.
Some utes, vans and other commercial vehicles may qualify for an FBT exemption for limited private use where the relevant conditions are met. The exemption is not automatic simply because the vehicle is described as a “ute” or “work vehicle”.
Personal ownership can be attractive where the vehicle has substantial private use or where the business use is relatively modest. For a sole trader, the cents-per-kilometre method may provide a simple way to claim eligible business travel without separately claiming each running cost. Where business use is higher, the logbook method may produce a larger deduction because it is based on the business-use percentage of eligible actual costs.
If you operate through a company, do not assume you can simply claim company-related travel in your personal tax return. The appropriate treatment may involve reimbursement or another documented arrangement, depending on the circumstances. It is worth setting this up correctly rather than paying business and personal vehicle costs interchangeably.
A logbook can be one of the most useful records for a business vehicle. A representative logbook is generally kept for at least 12 continuous weeks. When the requirements are satisfied, it can usually support the business-use percentage for up to five years, provided the pattern of use has not materially changed and the required odometer records are maintained.
Even where a logbook is not strictly required, keeping clear records can make it easier to demonstrate the split between business and private use if the ATO reviews the claim.
Eligible zero or low-emissions vehicles can receive concessional FBT treatment where the legislative conditions are satisfied. However, the rules changed for plug-in hybrid electric vehicles from 1 April 2025, and most PHEVs first provided after that date are no longer eligible for the electric car FBT exemption.
The government is also required to complete a review of the electric car FBT exemption by mid-2027, which will consider matters including the take-up of electric vehicles.
As a result, the FBT outcome for an electric vehicle can be quite different from that of a conventional petrol or diesel vehicle. Businesses considering purchasing an electric vehicle should therefore confirm the vehicle's eligibility and the applicable FBT rules before relying on the exemption.
The best option is usually the one that produces the best overall result after considering income tax, GST, FBT, financing and administration - not simply the option that gives the largest upfront deduction.
Buying a vehicle through your business can be tax-effective, but it is not automatically the best choice. A company-owned car can provide deductions and potential GST credits, while private use may create FBT and additional record-keeping. Personal ownership can be simpler in some situations, particularly when private use is significant, but the deduction method and reimbursement treatment must align with your business structure.
Before signing a purchase or finance agreement, consider modelling both options. A short discussion before the purchase can help avoid an unexpected FBT bill or an ownership structure that is difficult to unwind later.
Tax rules for vehicles can also change from year to year, so current thresholds and eligibility requirements should be checked at the time of purchase.
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Thinking about buying a new vehicle for your business? The team at Empire Accountants can help you compare personal and business ownership, consider the income tax, GST and FBT implications, and determine which option may be more appropriate for your circumstances. Contact us before you purchase or finance the vehicle so we can help you make an informed decision. |
This article contains general information only and does not constitute personal tax or financial advice. Your circumstances should be
reviewed before acting on the information above.
Prepared by
Betty Chen
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