Motor Vehicles - Tax Treatment

Grange Associates Ltd - 11 February 2012

The taxation of motor vehicles is one of the most vexing issues that chartered accountants regularly face. There are two reasons for this - the rules are complicated and there is often a strong emotional element. Motor vehicles can be expensive and many taxpayers don't really appreciate the limitations.

A particular motor vehicle's taxation treatment (income tax, GST and FBT) is influenced by its type, ownership, use and availability. We believe that most business vehicles can be categorized as belonging to one of the following groups.

  • Business Portion only is Deductible
    This taxation treatment applies to motor vehicles which are "business assets" and owned or leased by the self employed, partners and non working shareholders of Look Through Companies (LTC) .....
  • Fringe Benefit Tax (FBT) Applies
    This treatment applies to motor vehicles provided by companies to shareholder employees, companies to employees, self employed persons to employees, partnerships to employees and trusts to employees .....
  • Reimbursement of the Business Use of Personal Motor Vehicles
    This tax treatment applies to the business use of personal motor vehicles by the self employed, partners, LTC working shareholders, LTC non working shareholders, company shareholder employees, trustees and all employees .....

Our experience is that Inland Revenue can use the treatment of motor vehicles as an indicator as to a taxpayer's level of compliance.  When conducting a review, Inland Revenue will often quickly move on to someone else where they find the appropriate treatments in this and other key areas; where they do not, a more detailed investigation can follow.

Accordingly we recommend that taxpayers give this issue the appropriate emphasis.  Let us conduct a review of your practises to ensure that they and your supporting documentation will stand Inland Revenue's scrutiny.  Feel free to contact us now and get it underway.

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All information is correct at the date of article publication. Please note we provide the information as a service only. Accordingly, the contents are not intended as a substitute for specific professional advice and should not be relied upon for that purpose.   

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