The five questions to ask before buying a company car

The five questions to ask before buying a company car

Whether you're a start-up or a mature company, you may wonder if buying a car or vehicle for your business is the right decision.

According to the Australian Bureau of Statistics there are over 3.8 million commercial vehicles (trucks, buses, and other light commercial vehicles) on the books in Australia. That's a lot of choice.

If you are unsure whether a company car is for you, here are five simple questions to ask before you take the plunge.

1. Will I be using this for business over 50% of the time?

The most important question you must ask yourself is this: is the car you intend to purchase going to be used for business transactions (going to meetings, picking up supplies, deliveries, driving to sites) more than half the time?

If the answer is no, your purchase does not qualify as a business purchase.

This isn't some kind of arbitrary rule, this is the definition as provided by the Australian Taxation Office, and you don't want to get on their bad side.

2. Will this car be a performing asset for the business?

Once you've figured out that the vehicle you need is for business use, you need to take into consideration whether the asset will perform for your business.

That means, will the vehicle make a return on its investment by giving you more business opportunities by delivering freight, carrying tools, ferrying passengers, or any other of purposes that helps make a business money?

3. What kind of finance is available for business customers?

The two most common types of car loans available to business customers are the hire purchase and chattel mortgage. These work in the same way as a usual loan; however chattel mortgage has the car on your books from the beginning while the hire purchase has it recorded up as a lease from the bank.

"These types of loans are very flexible and allow you to borrow the entire amount up front without a deposit," says business car loan expert and Savvy CEO Bill Tsouvalas."

"You can pay off your registration, insurance, and other extras by borrowing more than the purchase price of the car, which makes it a real cash flow neutral solution."

Remember to ask your accountant for the best advice.

4. Does the car suit the needs of the business?

Everything in business must pass a "use case" and your company car is no different.

There is little point buying a luxury sedan to pick up clients from meetings when a smaller car will do the courtesy is enough to warrant its purchase!

If you are hauling tools and materials, a light van may not be as versatile as a ute; a semi-trailer might be overkill for a courier business. Think about the use case and purchase a vehicle accordingly.

5. Can I take advantage of tax write offs and other incentives?

Since you are buying for business, a car can qualify for the instant $30,000 asset write-off scheme in place now.

Better yet, business customers can claim back the GST, interest paid, and depreciation on their BAS or QAS statements.

For more advice on how to buy a company car speak with the team at Savvy.

This article was written in partnership with Savvy.

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