For a comprehensive overview of the income tax regulations in Australia, you can read this article on Wikipedia.
Which Car Loan Type Is Eligible For Tax Deductions?
Like most other loans, car loan is a secured loan that comes with a fixed repayment term and interest rate. While you might already be getting tax exemption on your home or education loan, you are not entirely sure if you can enjoy the same on your car loan. Well, car loan tax deduction does come with some riders for salaried and self-employed individuals.
Since vehicles fall under luxury items, a customer cannot avail income tax rebate when buying a new car. Vehicle loans can be secured either for buying a new or used automobile. In either scenario, if a customer, such as a salaried employee, gets the car for private use, he cannot claim any tax deduction. On the other hand, if you are self-employed or run a business, the interest or depreciation amount could be claimed on your tax return form. In short, if you are purchasing a vehicle for business or commercial purposes, you can avail tax benefits on the loan.
Several Australian banks offer a wide range of financial solutions to applicants such as individuals or companies searching for loans to finance vehicles to run their businesses or for their employees. Irrespective of the type of automobile, a customer, with proper research, can save both money and time after choosing the ideal option. If you want detailed information on the various taxation rules in Australia, you can visit the ATO's website:
Therefore, in the following sections, we shall discuss various financial options for a commercial vehicle loan and see how they can be used to avail tax deduction.
● Chattel Mortgage
Also referred to as a bill of sale or equipment loan, a chattel mortgage is a loan agreement where finances are borrowed to buy heavy equipment or trucks for business purposes. It comes with certain advantages such as inclusion of balloon payment and tax deduction on the interest paid. GST (goods and service tax) on the purchase price can also be claimed during income tax payment.
● Hire Purchase
A hire purchase is also termed as an offer to hire. In this agreement, during the hire term, the financier owns the asset and the hirer pays monthly instalments. Post the completion of this period, the ownership of the asset is automatically transferred to the hirer. Even this agreement includes various positive sides such as application of ballooning option and tax deduction on the interest amount.
● Car Finance Lease
In a car finance lease, the financier retains the title and the asset is leased to the borrower for a fixed tenure and agreed-upon rental amount. In this case, repayments are generally and fully eligible for tax deduction. Once the term ends, the financier usually offers the vehicle for sale at its residual value.
Can I Avail Tax Deduction If I Use A Personal Loan For Car Finance?
A personal loan can be availed for a variety of financing requirements – a holiday, education fees, a new car, or renovation. Again, a personal loan is eligible for tax rebate if you are availing the finances for business purposes. For personal scenarios, it does not offer any form of tax benefit to customers. For example, if the personal loan availed is utilised for paying the margin money of your house or for any business asset such as a vehicle and if you are able to establish this requirement, then the interest paid can be claimed according to the specific purpose for which the finances have been used.
If you are intending to avail a car loan tax deduction, then ensure that you are actually eligible for it. You need to own a genuine business in order to do so and should be able to provide the required proofs during auditing, which certify your eligibility for tax benefits. Inability to do so might result in severe penalties for evading tax payment. Hence, plan properly. Be diligent and careful, and whatever be your financial status, be a responsible citizen.
Disclaimer: For detailed information on tax benefits and payments, please always seek advice from your accountant.