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EOFY Case Study: How to Convert a New Car into Tax Credits

As most small business owners will attest, end of financial year is the time to track down great savings on business equipment. With the right advice, financing the purchase of that equipment can also pay off at tax time.

Nearing the end of financial year, David Broughton was looking to lower his real estate company’s tax obligations. He was also thinking about purchasing a new company car. When he visited his MFAA Accredited finance broker – an equipment and commercial finance specialist – David realised he could do both.

“The real estate agency has been going for close to two years,” explains David’s finance broker . “As with any business, the first couple of years are about covering your expenses and learning a lot, so you don’t have that surplus cash.”

Being that it was almost at the end of the financial year, and financial statements up until 31 May showed roughly what wages the business had paid, tax estimates and what cash the business had available, David and his finance broker could look at upgrading his car

“We took into consideration any GST liabilities without purchasing the car. Then we sat down and looked at what David’s needs and objectives were with the car, making sure that we work around the luxury tax threshold – I don’t advise clients to go over that.”

David’s finance broker and accountant worked together to find a purchase structure that suited the business’s needs and delivered the greatest financial benefit.

“The best structure that we’re going to move forward with is a chattle mortgage. With a chattle mortgage we can claim back the GST and he’ll be in a better net position from a GST perspective,” says David’s finance broker .

On a $55,000 car the business received a $5500 tax input. This freed up money to pay David a little bit more income and a little bit more superannuation.

“We took a holistic approach and took advantage of my equipment finance knowledge, and what I’ve learned through the MFAA, to take advantage of these tax benefits of different structures.”

Even better, David didn’t have to do any of the legwork. His finance broker used a car broker for both the trade in and the new car, finding the best net result with one dealer. He then presented David with a good options for the finance. Because the finance broker was not tied to a lender, he could use one car broker, and then another financier, making sure he got the appropriate deal deal on both.

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