Money Matters Investment & Finance Purchasing a new car
Purchasing a new car
Sunday, 01 October 2006
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money3_TN.jpgWhen purchasing a new car, without doubt you will head straight to the dealer that specialises in the make and model of your preference. After choosing the car, finance is the next step, yet this decision is often made quickly as the ease of just signing the documents from the dealer and driving away is very enticing.

Consider the following:

  • Interest on the purchase can add up to 30% of the original purchase price
  • The wrong structure could cost you some or all of your GST or other tax deductions

There are many ways to buy your new car, so before signing in a hurry, you may want to consider more than just the best loan rate. Consider the tax consequences.

Often dealers won't point out that Current ATO regulations prevent depreciation of a motor vehicle above $57,100 (inc. GST), regardless of the type of contract you use to purchase. Additionally, you can only claim tax to the extent of business use. These are important factors to help you understand the consequences of your purchase and your budget.

The main types of financing:

  1. Chattel Mortgages are used for financing personal or business property (excluding real estate). Instalments are structured to suit the borrower's cash flow. The main advantage of this loan type is for those who are GST registered on a cash basis, as many medical practitioners are, the full GST may be claimed on your next Business Activity Statement.
  2. Commercial Hire Purchase, for purchasing vehicles for business purposes. If GST-registered on a cash basis, you may only be able to claim GST monthly.
  3. Leasing, the finance company purchases the car for you, retaining the legal title, even after the final payment. You may receive an offer to purchase for the residual value. If the car is over the luxury car tax ($57 000), you cannot use the lease repayments as a deduction, but can only claim interest and depreciation up to the luxury car tax. GST is only claimable to the level of the luxury car tax.
  4. Using your home mortgage line of credit to finance your car loan may sometimes be more suitable. The rate is usually variable, may be a bit lower, though you need to consider your home is security that may prevent you from using this equity for other needs.

In order to determine which loan structure is right for you, speak with a specialist financer who has an understanding of your financial and business circumstances. By choosing the right option, you'll avoid undesirable penalties and other potential hidden costs, plus maybe have money back from the tax office faster! It's all in the planning.


Richard Curia is Experien Medical Finance's WA consultant. He is contactable on 9202 6846 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it .