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What You Need to Know About Getting Company Cars

Congratulations! Your company has had a successful couple of years, and you’ve made enough profits to start expanding. Perhaps now you are looking to buy a fleet of company cars to give your employees reliable transportation.

This can be a big investment, but it is often worthwhile. Your employees will love driving around in a luxury vehicle and be prouder to work with you, and your clients will appreciate the professionalism that company cars convey.

Here is some information about the process involved with investing in company cars, important factors you should keep in mind, and how to get started.

The Red Tape Around Company Cars

Unfortunately, getting a company car is not as simple as buying one from the lot and handing the keys over to your employee. There are a few legal hoops to jump through, and the first one should be obvious: taxes.

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The main tax that you need to keep in mind is the fringe benefit tax. This is the tax that employers pay for non-salary related benefits, which is most commonly a company car. It is separate from income tax, and there are two ways to calculate how much you’ll have to pay.

  • The first way is called the statutory formula method, and it is simply based on the price you initially paid for the vehicle.
  • The second option is the operating cost method, which calculates the taxes owed based on the operating costs of the vehicle. For this option you must document all operating costs with a vehicle log book.

While the second option can save you money in the long run, it does require some legwork on your part as well as consistent record keeping.

Benefits and Tax Deductions with Company Cars

The good news about company cars is that they do not qualify for the capital gains tax, even if you end up selling it. Just to review, the capital gains tax is a tax on any profits made from selling non-inventory items, such as property or stocks.

Another piece of good news is that you are allowed to claim your company-car related expenses as deductions on your taxes. Again, it requires a detailed log book that keeps track of all your car-related expenses. The log requires details about every business journey during any 12-week period. This includes the number of kilometers traveled as well as any maintenance and refueling costs.

Buy New, Used, or Lease?

If you ask ten business owners what the best option is for purchasing a company vehicle, they will give you a combination of these three options: new, used, or lease. The truth is, the option that is best for you depends on you.

Your needs, your long-term plans with the car, and the amount you are able to initially invest are important factors to consider.

Buying a new company car is the simplest option, but it is obviously the most expensive. This is only recommended for those who have the capital to do so without being hurt by the cost.

Most of the time, people are looking for a newer model when deciding on a company car, but there are alternatives for those on a budget.

Sometimes you can look around at auto salvage places, such as auto wreckers in Melbourne, for great deals on used cars that you can buy outright. And what’s convenient about places like this is that you can sell your company car back to them, regardless of condition.

Another alternative is leasing the cars. This is a good option if you can afford the monthly payments in addition to your other overhead.

There is a leasing option that many businesses opt into, called novated leasing. This is a three-way lease involving the financier, the employer, and the employee who will be using the car.

Basically, the company agrees to lease the car on behalf of the employee, and then deducts the payments from the employee’s salary.

 

The most important thing to keep in mind is staying within your financial means. No sense buying a fleet of company cars just to go out of business a little while later!

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