Owning a car in your business? Here's what you need to know about tax

For many trade business owners, buying a car through the business feels like a smart move. After all, you’re on the road a lot, and there’s potential for a healthy tax deduction - right?

Yes, but only if you use it the right way and keep accurate records. Otherwise, you might be hit with fringe benefits tax (FBT), which can quickly undo the benefits.

What's the issue?

The ATO treats a company car used for private purposes as a fringe benefit. Even if the car is “mostly” used for work, the personal component triggers FBT.

Here are examples of what the ATO counts as private use:

• School drop-offs or weekend trips

• Parking it at home overnight

• Running errands during personal time

  
  

And yes - even driving from home to the worksite can count as private use in some cases.

What can go wrong?

If you’re not tracking business vs. private use, the ATO might assume 100% personal use.

That's means:

• A big FBT liability at the end of the year

• Lost deductions if the business use isn’t clearly proven

• Possible penalties and interest for non-compliance

How to stay on the right side of the ATO

1. Keep a logbook: This is non-negotiable. You need to track business vs. personal kilometres for at least 12 continuous weeks. This sets the percentage of business use you can claim.

2. Don’t park it at home (if possible): Parking at home every night can suggest the vehicle is available for personal use, even if it isn’t driven.

3. Use a novated lease if personal use is high: If the vehicle is mostly for private use, a novated lease (paid via your wage package) may be more appropriate and tax-effective.

4. Get help structuring it right: An accountant can help you figure out whether the vehicle should be under the business, your name, or leased via salary sacrifice.

   
   

What about utes?

Many trade business owners assume that owning a ute or commercial van means they’re safe from FBT. That’s not entirely true. While there are exemptions for some commercial vehicles, the ATO still expects you to limit private use to “minor, infrequent and irregular” use.

So if your “work” ute is doubling as the family holiday car, you could be in FBT territory.

Buying a vehicle through your business can be a smart move - but only if you follow the rules and track your use properly. Otherwise, what seemed like a tax break can quickly turn into a tax burden. Need help choosing the best structure or avoiding FBT surprises? Join our Small Business Foundations Course to learn more!