employee car

In today’s competitive business world, providing company cars can be a great way to keep your team happy and your business running smoothly. Whether it’s for specific job roles, boosting your brand, or keeping your best people on board, there are plenty of reasons to offer this perk. But understanding the tax implications and picking the right option can be tricky. This guide is here to help you make sense of it all.

Why Provide a Company Vehicle?

  1. Job-Specific Requirements: Some jobs need specific vehicles. Think of delivery drivers or emergency responders—they can’t do their jobs without the right wheels. Providing the right vehicle ensures your team can do their jobs effectively and safely. For example, an ambulance service without ambulances just wouldn’t work.
  2. Image and Branding: Company-branded cars act as moving billboards. They get your name out there and make your business look professional. Vehicles with your logo driving around town can boost your brand visibility and make a lasting impression.
  3. Retention and Motivation: A company car can be a big perk that helps you keep your top talent. It shows that you value and invest in your employees. For high-performing staff, a company car can be a reward that boosts morale and encourages loyalty. Plus, it can be a deterrent for those considering leaving—they’d have to give up the car.
  4. Control: When you provide the vehicle, you can set the rules for how it’s used. This means you can ensure it’s used for business purposes and is well-maintained. You can also track usage with technology to ensure efficiency and safety.
  5. Safety: Providing a reliable, safe vehicle ensures your employees’ well-being and reduces the risk of accidents. You can also ensure the vehicle is up to safety standards and well-maintained, which also reduces your company’s liability.

Tax Implications

When you give a company vehicle, there are several tax-related questions to think about:

  • Ownership and Operation: Who owns and drives the car? This affects tax deductions and responsibilities.
  • Funding: How is the vehicle paid for? Different methods have different tax implications.
  • FBT Application: Does Fringe Benefits Tax (FBT) apply? FBT can impact the overall cost.
  • Employee Contributions: Are employees contributing to the cost? This can reduce FBT liability.
  • Deductible Rules: Do otherwise deductible rules apply? These determine what can be claimed as tax deductions.
  • GST Claims: Who can claim GST? This affects the overall cost.
  • Tax Deductions: Who can claim the tax deduction? Getting this right can maximise tax benefits.
  • Capital Gains: Who benefits from capital gains if the vehicle is sold for more? This is important to understand.
  • Statutory Taxes: Are there taxes on transferring ownership? Moving the car between entities can attract stamp duties.

These factors can significantly affect the cost and tax treatment of the vehicle.

Options for Providing Vehicles

  1. Employee Vehicle: Employees use their own cars for business.
    • Pros: No FBT, simple for the employer.
    • Cons: Limited control, no GST claims, higher potential costs for employees.
    • Details: Employees cover all costs but can claim tax deductions for business use. This setup limits employer control over how the car is used and maintained. Employees might be less willing to travel extensively for business if they’re footing the bill.
  2. Motor Vehicle Allowance: Employees get an allowance to cover vehicle costs.
    • Pros: Flexible, no FBT, fixed cost for the business, motivating for employees.
    • Cons: Setting a fair allowance can be tricky, may not cover all expenses.
    • Details: Employees get a set amount to cover their vehicle expenses. It’s less political and lets employees pick their own cars. The fixed cost makes budgeting easier for you. However, setting the right amount can be challenging, and employees might end up with different out-of-pocket costs.
  3. Chattel Mortgage: The business owns the vehicle, using it as security for a loan.
    • Pros: Immediate ownership, full control, potential tax benefits.
    • Cons: FBT may apply, business bears all risks.
    • Details: The business owns the vehicle from the start, with the car acting as security for the loan. This gives full control and potential tax benefits through depreciation and interest deductions. But, you have to deal with FBT and all costs, including maintenance and insurance.
  4. Hire Purchase: The business owns the vehicle after the final payment.
    • Pros: Structured payments, eventual ownership, potential tax benefits.
    • Cons: FBT may apply, final balloon payment responsibility.
    • Details: The financier buys the car, and you make regular payments. Ownership transfers after the final payment, which might include a balloon payment. This spreads the cost over time and allows tax deductions for interest and depreciation. However, FBT applies, and you need to handle the final payment.
  5. Novated Lease: A three-party agreement between employer, employee, and finance company.
    • Pros: Tax savings for employee through salary sacrificing, flexible options at lease end.
    • Cons: Minimal benefit to the employer, managing leases can be complex.
    • Details: In a novated lease, the employee leases the car, and you make lease payments from their pre-tax salary. This reduces the employee’s taxable income, offering tax savings. At the lease end, they can buy the car, extend the lease, or return it. This arrangement simplifies vehicle management for employees but offers limited direct benefits to employers.

Salary Sacrificing Benefits

For example, an employee with a $100,000 salary who salary sacrifices a $65,000 car (including running costs) can reduce their taxable income, leading to big tax savings. Over the lease term, this can mean substantial financial benefits for the employee.

Salary sacrificing a vehicle can provide significant tax advantages for employees. By deducting lease payments and running costs from pre-tax income, employees can lower their taxable income and save on overall tax. This also makes managing the vehicle easier.

Conclusion

Offering company cars can bring big benefits to both you and your team. It can boost your brand, help retain top talent, and give you control and peace of mind about vehicle use and safety. But, it’s important to understand the tax implications and choose the right method for your business and employees.

Whether it’s employee vehicles, motor vehicle allowances, chattel mortgages, hire purchases, or novated leases, each option has its pros and cons. You’ll need to weigh these based on your unique situation and what works best for your team.

For more details or specific advice on providing vehicles, get in touch with Quantum Advisory. Partnering with Quantum Advisory allows you to focus on what you do best – running your business – while leaving the financial aspects in capable hands. Contact us today to experience the benefits of working with Quantum Advisory.