Business Car Finance in Australia: An Overview
Financing a car for business use unlocks a range of tax advantages not available on personal vehicle purchases. The structure you choose — chattel mortgage, finance lease or novated lease — determines how the asset is treated for GST, income tax and accounting purposes.
This guide covers the key considerations for Australian business owners financing a car, SUV or people mover for business use.
Key requirement: The vehicle must be used predominantly for business purposes. Most lenders and the ATO require at least 50 percent business use, though the higher the business use percentage, the more you can claim.
Chattel Mortgage for Business Cars
The chattel mortgage is the most common structure for business vehicle finance. You own the car from day one, claim the GST on the purchase price in your next BAS, and deduct the interest and depreciation through your tax return. Monthly repayments can be structured with a balloon payment to keep them lower.
Finance Lease for Business Cars
A finance lease is preferred by some businesses that want off-balance-sheet treatment or that upgrade vehicles regularly. The lender owns the car and you lease it, claiming each lease payment as a tax deduction. At end of term you can buy the car at the residual value, re-lease or return it.
Novated Lease for Employees
A novated lease is a three-party arrangement between an employee, their employer and a finance company. The employer makes lease payments from the employee's pre-tax salary, reducing their taxable income. For eligible vehicles, this can create significant tax savings. It is particularly effective for employees purchasing their own car with employer involvement.
Luxury Car Tax Considerations
Vehicles above the luxury car tax (LCT) threshold are subject to LCT, which affects the amount of GST you can claim as a business. The LCT threshold changes annually — check the ATO website for the current figure. For vehicles above the threshold, your accountant should advise on the net tax impact before you commit to the purchase.
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Most business vehicles are used for a mix of business and private purposes. You can still finance the vehicle under a business structure — the business use percentage determines what proportion of costs you can claim. Keep a logbook for at least 12 consecutive weeks to establish your business use percentage for the ATO.
New vs Used Business Cars
New cars are the most straightforward to finance and attract the widest range of lender options. Used vehicles are also readily financed — lenders typically assess the age, odometer and condition of the vehicle. Most mainstream lenders fund vehicles up to around 12 to 15 years old for business use, depending on the specific model and condition.