Forget fair and reasonable: it's the law
When it comes to working out what's tax deductible, you must abide relevant taxation laws, rather than going by what appears to be fair and reasonable.
Q. We have a small business running a car enthusiast website for the new Toyota 86. We have a company and are not registered for GST. Through Google advertising and forum sponsors we generate around $1000 in income per month.
We would like to purchase a Toyota 86 for the business to promote the forum. The car would have stickers on it advertising the forum/website. Because our business is 100 per cent centred around this car all the driving in it would be business trips as they would be promoting the website/forum. Is this a fair assumption?
Could you please advise on the best way to claim tax deductions, depreciation etc? The car would cost around $33,000 on the road or $41,000 on the road for the top spec model. The business has around $5000 in the bank that could be used towards the purchase of the car.
A. From your question it appears you are trying to claim 100 per cent of the cost of this new vehicle based on the fact that it will be advertising your website and business. Unfortunately the tax laws relating to claiming motor vehicle expenses do not take into account whether a car has advertising on it or not.
If you want to maximise the claim for any vehicle you are forced to use the log book method. Under this method a log book must be kept for 12 weeks that establishes the business use of the vehicle. The business use of a vehicle is dictated by the purpose of each trip.
Travel in a motor vehicle that is classed as business includes the following trips:
• from home to visit a customer or a supplier and return
• from one customer or supplier to another
• from a place of business to a customer or supplier and return
• from home to a place of business where bulky tools or advertising material must be carried in the car
If you did not carry on this business from home and had to travel to an office, and did not carry bulky tools or advertising material, the kilometres driven on this trip would be classed as private. Having advertising on your car does not change the private nature of this trip or any other purely private travel.
Unless you have a second car that is used for purely private travel, and the new vehicle is only used for business purposes, it will be almost impossible for you to claim 100 per cent of its running costs.
Once you have established the business use of the vehicle you can claim that percentage of fuel, registration, insurance, and repairs and maintenance. If a lease is used to finance the purchase you can claim the business percentage of the lease costs. If a loan or hire purchase contract is used you can claim all of the interest charged and the business use percentage of the depreciation of the vehicle.
Questions on small business tax or other issues can be emailed to firstname.lastname@example.org.
Tax for small business, a survival guide, by Max Newnham is available in bookstores and as an ebook.