Buying a vehicle through your business: what you need to know

A client recently came in, ready to sign finance paperwork for a new work vehicle. He’d sorted everything with his bank – just needed our signature on the company financials.

Before we signed anything, we asked him one question: “How does your business report GST – cash or accrual?”

He paused. “Accrual, I think. Why does that matter?”

It mattered because the finance structure his bank had set up meant he’d be claiming his GST credits progressively over five years. With a chattel mortgage instead, he could claim the full $5,455 GST credit in his next BAS – money in his account within weeks, not years.

Twenty minutes later, we’d restructured the deal. Same vehicle. Same interest rate. But an extra $5,000-plus in his pocket in the first quarter, plus better tax deductions over the life of the loan.

Understanding your GST reporting basis

Before you choose any finance option, you need to know whether your business reports GST on a cash or accrual basis.

This determines when you can claim GST credits – and the timing makes a real difference to your cash flow.

Under some finance structures, you get the full GST credit upfront. Under others, you claim it progressively over three, four, or five years. For a $60,000 vehicle, that’s roughly $5,455. Having it in your account this quarter versus spreading it over five years changes your cash position immediately.

Your four main finance options

1: Chattel mortgage

You own the vehicle from day one. The financier takes security over it, but it’s your asset.

From a tax planning perspective, this is usually the most effective structure. You claim the full GST credit upfront in your next BAS (subject to the ATO car limit). You depreciate the vehicle over its useful life and claim the interest portion of your repayments as a deduction.

This works whether you report GST on a cash or accrual basis.

The result is immediate cash flow relief and maximum tax deductions from day one.

2: Hire purchase

Hire purchase is treated similarly to a chattel mortgage for tax purposes, but you don’t legally own the vehicle until you make the final payment.

The ATO still treats you as the owner for tax purposes, which means you can claim the GST credit upfront, depreciate the vehicle, and deduct the interest.

The main difference is flexibility. If you need to exit early or upgrade, a hire purchase can be less flexible than a chattel mortgage.

The choice between the two usually comes down to the financier’s terms and whether you need legal ownership from the start.

3: Finance lease

The financier owns the vehicle. You’re renting it for business use.

The tax treatment changes completely. You can only claim GST credits progressively on each lease payment – no upfront benefit. And you can’t claim depreciation because you don’t own the asset. Instead, you deduct the lease payments themselves.

Finance leases can work for businesses that want simplified expense recognition and don’t need the vehicle on their balance sheet. But from a tax planning and cash flow perspective, it’s not where we’d typically land with our clients.

4: Personal loan or cash purchase

If you buy the vehicle personally rather than through the business, you typically can’t claim GST credits. Deductions are harder to substantiate, and the tax benefit is limited.

This is the least tax-effective option for most business owners.

The business use percentage matters

Here’s what’s critical: all the GST credits and deductions we’ve talked about are limited to the business portion of the vehicle.

If you use the vehicle 80% for business and 20% privately, you can only claim 80% of the GST and deductions.

You’ll need to keep proper records. Either:

• A logbook showing your business trips over a continuous 12-week period. Record the purpose of each trip, kilometres travelled, and whether it was work-related or private. Once you’ve completed 12 weeks of detailed records, the logbook remains valid for five years.
• Or the cents per kilometre method if you’re doing less than 5,000 business kilometres per year.

Fringe Benefits Tax (FBT)

If you or your employees use the vehicle for private purposes, you may need to pay FBT.

Some vehicles are exempt from FBT – utes, panel vans, and other occupation-specific vehicles – but only if private use is limited to travel between home and work or is incidental to employment duties. Private use must be minor, infrequent, and irregular.

To minimise FBT, keep thorough records demonstrating business use. If the vehicle doesn’t qualify for an exemption, there are methods to reduce the FBT liability – the statutory method or the operating cost method. These are complex, which is why we work through them with you.

How does this fit into your wealth-creation strategy?

We don’t look at vehicle finance in isolation. We look at how it fits your broader goals.

If you’re planning to purchase business premises in the next few years, we need to think about how today’s financing decisions affect your borrowing capacity and cash reserves. Maximising your GST and tax position now means more profit stays in the business to fund that purchase.

If you’re focused on wealth creation outside the business, we want to structure things so you’re retaining as much profit as possible. That profit gets recycled into investment property, superannuation, or other wealth-building strategies.

This is what we work through in our strategic planning sessions. Not just “what’s the cheapest repayment?” but “what structure supports your financial freedom, time freedom, and peace of mind?”

Before you sign anything

Here’s what you need to sort out before you purchase:

• Which entity is purchasing the vehicle? This affects tax treatment and legal ownership.
• Who will insure the vehicle – business or personal?
• Whether you’re claiming GST credits and tax deductions, this needs to be clear from the outset.
• If you’re considering a salary sacrifice arrangement for an employee, the paperwork and payroll changes need to be arranged before the purchase.
• Business vs private use split – is this genuinely a business decision or a lifestyle choice? If it’s a lifestyle, make sure your business can comfortably absorb the costs.

Talk to us before you sign

Before you commit to any vehicle finance arrangement, have a conversation with us. We’ll show you how it affects your tax position, your cash flow, and your capacity to achieve your bigger goals.

We’ll explain it in plain English and help you make a decision that actually works for your business.