Can I Claim a Second-Hand Car on Tax?
Purchasing a second-hand car can be a cost-effective way to acquire a vehicle, but can you claim it on tax in Australia?
The answer depends on several factors, including how the car is used, who owns it, and whether it qualifies under Australian Taxation Office (ATO) guidelines. Business owners, self-employed individuals, and certain employees may be eligible to claim a second-hand car on tax.
This blog explores the circumstances under which you can make a claim, the documentation required, and how the tax process works. Whether you’re looking at used cars in Frankston, searching used car sales Frankston, or tossing up Frankston used car dealerships, understanding tax implications can help maximise savings.
Claiming a Car on Tax for Business Purposes
Business Use
To claim a second-hand car on tax, it must be used for business purposes. Sole traders, freelancers, and small business owners who use a vehicle for work-related activities—such as travelling to clients, making deliveries, or attending business meetings—may be able to claim a tax deduction. This applies whether you purchase from used car dealers in Frankston, Mornington or Hastings.
Percentage of Business Use
If the car is used for both business and personal purposes, only the business-use portion can be claimed. To calculate this, you need to determine the percentage of time the vehicle is used for work-related travel compared to personal use. The higher the percentage of business use, the greater the deduction you can claim.
Logbook Method
One of the most effective ways to track business use is the logbook method. The ATO requires a logbook to be maintained for a continuous 12-week period, documenting each trip with details of the date, distance traveled, and purpose of the journey. This percentage is then applied to car expenses for tax deductions.
Depreciation and Tax Deductions
Depreciation
The ATO allows businesses to claim depreciation on second-hand cars. Depreciation accounts for the decrease in value of the car over time. There are different methods of calculating depreciation, including the diminishing value and prime cost methods.
Instant Asset Write-Off
Under the instant asset write-off scheme, eligible small businesses may be able to immediately deduct the full cost of a second-hand car. The eligibility criteria depend on the purchase price and business turnover. This incentive is particularly useful for businesses needing to acquire vehicles quickly while maximising tax benefits, one of the many reasons why buying a used car is the smartest choice whether from used cars dealerships in Frankston or Mornington.
Annual Deductions
Beyond depreciation, businesses can also claim ongoing expenses related to the car, including:
- Fuel and oil
- Maintenance and repairs
- Registration and insurance
- Loan interest (if applicable)
These expenses must be proportionally calculated based on business use.
Claiming GST on a Second-Hand Car
GST on Used Cars
If you are registered for GST, you may be able to claim the GST portion of the purchase price of a second-hand car. However, the seller must also be registered for GST, and the sale must include a tax invoice.
Input Tax Credit
Businesses purchasing a second-hand car for business purposes can claim an input tax credit, allowing them to recover GST paid on the purchase. The amount claimed must align with the business-use percentage of the vehicle.
Claims for Private Use of the Car
Limited Tax Claims for Private Use
If the car is used purely for personal reasons, it cannot be claimed as a tax deduction. Even if used for both personal and business purposes, only the business-use portion can be claimed.
Fringe Benefits Tax (FBT)
If an employer provides a second-hand car to an employee for private use, it may be subject to Fringe Benefits Tax (FBT). Employers should be aware of their obligations and the potential costs associated with providing cars to employees.
Documentation Required for Tax Claims
Invoices and Receipts
To claim a second-hand car on tax, keeping accurate records is essential. Proper documentation includes invoices, receipts, and contracts related to the purchase. The ATO may require proof of purchase to validate claims.
Logbooks and Record-Keeping
Aside from keeping receipts, maintaining a logbook is crucial for substantiating business-use claims. Digital or paper logbooks should detail trip records and total mileage, helping to ensure compliance with ATO regulations.
Final Thoughts on Claiming a Second-Hand Car on Tax
Claiming a second-hand car on tax in Australia is possible under specific conditions. Business owners, sole traders, and self-employed individuals can claim deductions based on the percentage of business use.
Whether you’re searching used car dealers near me or used cars in Mornington, Frankston, and Hastings, understanding tax rules can help you make an informed decision.
Keeping thorough records, using the correct depreciation methods, and understanding GST implications are key to ensuring compliance with ATO rules. If unsure about eligibility, consulting a tax professional can help maximise deductions while ensuring all guidelines are met.
In combination with our useful tips we recommend reading our used car buying guide to better understand what to look for in a second hand car purchase before factoring in tax deductions.