Top Tax Considerations When Financing a Business Vehicle
When you finance a vehicle for your business, it's not just about getting the right wheels - it can also come with tax implications that affect your bottom line. Whether you're a sole trader, small business owner, or growing enterprise, understanding the basics of how business vehicle finance can impact your taxes helps you make smarter decisions.
While this article doesn't offer financial advice, it will walk you through key points to consider before you apply for commercial vehicle finance. And remember - always speak to your accountant or financial adviser to get advice tailored to your situations.
Your Vehicle Needs to be Used for Business Purposes
First things first: to claim any tax benefits on a vehicle loan, the vehicle needs to be used primarily for business purposes. This might include:
- A van used for deliveries
- A ute for your trade work
- A small truck for transporting goods
- A car for regular client visits or mobile services
- A tractor for agricultural operations
If the vehicle is also used privately (say, on weekends), you'll likely need to keep a logbook to record the split between business and personal use.
You May be Able to Claim Interest and Depreciation
If the vehicle is a business asset and the loan is in your business name, you may be able to claim:
- Interest on the loan
- Depreciation (decline in value) of the vehicle over time
The Australian Taxation Office (ATO) allows businesses to write off part of the cost of the vehicle each year as it wears out. This is known as depreciation. The amount you can claim depends on the cost of the vehicle and how much it's used for business.
Speak to your tax agent to determine what method of depreciation suits your business - particularly if you're financing multiple assets.
GST May be Claimable Upfront
If you're registered for GST and use the vehicle for business purposes, you may be able to claim the GST on the vehicle purchase price in your next Business Activity Statement (BAS).
This is especially relevant for Chattel Mortgages, which are a popular form of business vehicle finance. With a chattel mortgage, your business owns the vehicle from day one, allowing potential GST claims right away (subject to ATO rules and thresholds).
Keep in mind:
- The claim is generally made on your BAS, not your tax return
- You may only be eligible to claim the business-use portion
- You need to have a valid tax invoice
Instant Asset Write-Off & Temporary Full Expensing
In recent years, the ATO has offered incentives to help small and medium businesses invest in assets through programs like:
- Instant Asset Write-Off
- Temporary Full Expensing (which has replaced it in some cases)
These allow eligible businesses to immediately deduct the full cost of a vehicle, rather than spreading depreciation over several years. This can be a powerful way to reduce taxable income in the year of purchase - especially when business cash flow is strong.
However, these programs change based on government policy, so always check the current rules or ask your accountant whether you're eligible.
Balloon Payments Have Tax Implications Too
Some business owners choose to structure their loan with a balloon payment - a larger lump sum due at the end of the loan term. This lowers regular repayments, freeing up cash flow for day-to-day expenses.
Tax-wise, a balloon payment may not affect the deductibility of interest or depreciation, but it does impact your overall cash flow, which in turn affects your tax planning. It's worth factoring this into your forecasting and discussing with your financial adviser.
Fuel and Maintenance May be Deductible
While not directly tied to your loan, ongoing expenses like fuel servicing, tyres, insurance, and registration may be tax-deductible if the vehicle is used for business.
These expenses can be claimed separately and are often easier to track when the vehicle has its own dedicated account or credit card.
Pro tip: Keep good records! Whether you're using a logbook, accounting software, or manual receipts, strong record-keeping makes tax time much easier - and gives you more control over your finances.
What About Leased Vehicles?
If you choose a finance lease instead of a loan, the tax treatment may be different. Generally, lease payments are treated as an operating expense and may be deductible over time.
However, you don't technically own the vehicle during the lease term, and GST is usually applied differently.
Again, your accountant is the best person to help compare the tax impact of a loan vs lease for your business.
Don't Forget Fringe Benefits Tax (FBT)
If a vehicle financed by your business is also used for personal purposes - especially by employees - you may be liable for Fringe Benefits Tax (FBT).
This applies when an employee (including yourself as a director or owner) receives personal use of a business vehicle as a benefit. The good news is there are concessions, exemptions, and calculation methods that may reduce the amount payable.
If you're unsure whether FBT applies to your vehicle, it's worth raising the question with your tax professional.
Final Thoughts
There are a number of tax considerations when financing a business vehicle - but with the right guidance, it can also be an opportunity to improve your business cash flow and reduce your taxable income.
At AFS, we've helped thousands of Aussie business owners finance their commercial vehicles with flexible loans that work for them. While we can't provide tax advice, we work closely with customers and their accountants to ensure everything runs smoothly from application to settlement.
Need finance for a ute, van, car or small truck? Talk to AFS today about how we can support your business on and off the road - with vehicle loans built for real Australian businesses.