As an Uber Driver, your car is your most critical business asset, so the decision to buy a car is an important one. Perhaps you’re looking to start driving but your current car doesn’t meet Uber’s requirements. Perhaps you see yourself driving for Uber longer term so it’s time to upgrade. Or perhaps you just need a new car, and driving for Uber is a fantastic way to help with the cost. In all of these cases it’s important to understand the tax implications of your purchase. This article aims to cover the basics of tax and GST when buying a car for Uber.
A common misconception to clear up right away is that you’ll ‘get it all back on tax’. This is not the case. When you claim a tax deduction, you only get back some of the money you spend. For example, if your taxable income is between $37k and $87k you’re in the 34.5% tax bracket, so you’ll get back 34.5 cents of every dollar you spend. The other 65.5 cents comes directly out of your pocket. If you’re in the $18k-$37k tax bracket you’ll only get back 21 cents in the dollar and pay 79 cents in the dollar yourself. So although you will receive some tax benefits for your new car, the bulk of the cost will come from your pocket.
Another important consideration is that many drivers don’t make as much money as they first expect, especially after taking into account income tax, GST and car running costs. Be sure to evaluate whether you can still afford your car even if you make less than you expect from Uber driving.
If you’re not sure yet whether you’ll drive Uber for the long term, but your current car doesn’t meet requirements, a great option is to rent a vehicle and try Uber first before committing to a car purchase or a loan. There are a number of rental companies that specialise in renting to Uber drivers. We highly recommend Splend for their exceptional member services, including driver training and strategic advice, fuel discounts, and networking opportunities with other drivers.
Here are a few more common questions about buying a car:
- New or Used?: Tax-wise, it makes no difference. You’ll claim the same percentage rate of depreciation on the purchase price regardless of whether the car is brand new or used.
- Dealer or Private Seller?: Buying from a dealer is usually a little more expensive because they provide benefits such as a statutory warranty, so you’ll need to decide if this is worthwhile for you. From a tax perspective, if you buy from a dealer the cost of the car will include GST, which you can claim back from the ATO. So if you’re comparing a dealer car to a private sale car be sure to take into account the GST you’ll get back from the dealer car. More on how to calculate this below.
- Should I Buy Under $20,000?: If you’re buying your car before 30 June 2018 you should take into account the instant asset write-off for vehicles under $20k. But depending on your circumstances the write-off may or may not actually benefit you. If you’re looking at cars in this price bracket be sure to read below to see how this affects you.
Financing Your Car
There are many factors to consider in choosing how to finance your car, including affordability of repayments, how long you plan to drive for, and whether your circumstances allow you to apply for a loan. These questions are best discussed with your finance broker, who should be able to provide you with calculations comparing loan options as well as loan vs lease analyses.
The way you choose to buy and finance your car will also affect the way you claim tax deductions. For example, the timing of deductions between a loan and a lease are very different:
- Buy Car & Take Out a Loan: If you purchase your car directly and take out a loan, your depreciation and interest deductions will be largest in the first year and diminish over time. If you purchase your car from a dealer you’ll also receive a lump sum refund of GST on your next BAS.
- Lease or Rent a Car: If you lease or rent a vehicle, your tax deductions and GST claims are spread evenly over the life of the lease, rather than being ‘front-loaded’. You’ll claim the GST back on your lease/rental payments quarterly, and claim a tax deduction for your lease repayments for the year (excl GST) on your tax return. Since you don’t own the vehicle directly you won’t be eligible to claim depreciation or the Instant Asset Write-off (more on this below).
- Salary Packaging: If you salary package a vehicle through your employer, you’ll receive all of your tax benefits through the package. This means you cannot also claim tax deductions for those expenses in your tax return, as this would be ‘double-dipping’. You can still claim GST and tax deductions for any expenses that are not packaged (i.e. paid out of your own pocket), but you must keep a logbook to be eligible.
As you can see, from a tax perspective the biggest difference is that with a loan your tax benefits are ‘front-loaded’, while if you lease/rent a car the tax benefits are spread evenly over the lease/rental period. So when choosing which of these suits you best consider how long you expect to drive for, whether you plan to upgrade the car in few years or car or keep it long term, and your immediate cashflow needs.
Looking for a Finance Broker?
A finance broker can do this for you free of charge, help find a lender who fits your circumstances and budget, and manage the loan application process for you. DriveTax works with a broker understands Uber, is experienced in matching drivers with the right loan, and has helped many of our clients through the process of financing their car. Email us here for more information on this service or to arrange a chat.
If you purchase your car from a dealer, the purchase price will include GST which you can claim back on your next Business Activity Statement (BAS), provided you are registered for GST on the date of purchase. The amount of GST you’ll get back will be a little less than 1/11th of the price of your car (because some on-road costs don’t include GST) multiplied by your business-use percentage. Note that a logbook isn’t required for GST claims, instead the ATO allows you to make a reasonable estimate of your business use percentage. The logbook is required for your end of year income tax though, more on this below.
Remember that to be eligible to register for GST, you have actively started the Uber application process to prove that you are ‘running a business’. If you plan to purchase a car and you haven’t yet registered for GST, we recommend that you first start the Uber driver application process if you haven’t already to prove your eligibility. Then head to our GST Registration page and fill in the form, and we will submit your GST Registration application to the ATO for you for free. You can read more information for new drivers here.
- Purchase from Private Seller: If you purchase a car privately, there is generally no GST on the purchase price, as the seller is not registered for GST. This means there is no GST to claim back on the purchase of the car, because you did not pay any GST in the first place.
- Lease or Rent: On your quarterly BAS you’ll claim back the GST on your lease/rent payments multiplied by your business use percentage.
- Salary Packaging: In a salary packaging arrangement your employer owns the car and pays the expenses, so they are the ones to claim the GST credits. However this is taken into account when working out the amount that is deducted from your pay, so you still indirectly receive the benefit of the GST credits. If you pay for fuel, cleaning or any other running costs out of your own pocket (i.e. outside of the salary packaging) you can claim the GST on these expenses on your BAS.
Claiming Tax Deductions
Instant Asset Write-Off
If you purchase your car before 30 June 2020, the purchase price excluding GST is $29,999 or less (including all on-road costs, even if paid separately) and you have kept a valid ATO-compliant logbook, then you will be eligible for the Instant Asset Write-Off. This means you can claim a tax deduction for the whole cost of your car up front.
Keep in mind though that you may not get to use this whole tax deduction. If your tax deductions (including the write-off) are more than your Uber income for the year, this creates a loss, which means you’ll pay no tax on your Uber income for the year. However you cannot claim the remaining loss against your employment and other taxable income unless your Gross Uber Fares for the financial year are over $20,000 (excl GST). If they are not, then your loss will be ‘carried forward’. This means it can only be claimed against Uber profits in future years, or if your Gross Uber Fees exceed $20,000 (excl GST) in a future year then the loss can be claimed against your other taxable income.
It’s important to recognise that the Instant Asset Write-Off comes with a sting in the tail. When you sell the car or stop driving for Uber you must pay income tax on the sale price/market value of the car, subject to your logbook percentage (you can read more on tax on selling your car below). Therefore we only recommend claiming the Instant Asset Write-Off if you plan to drive for Uber for a number of years, or if you have a high Uber tax bill in the current year to make the Write-Off worthwhile. If you have your tax return prepared by DriveTax we will always explain your options and discuss the trade-offs before claiming the Instant Asset Write-Off. If you’ve bought a car an eligible vehicle, we recommend having your tax return prepared by DriveTax or another registered tax agent and discuss the consequences of this claim to make sure you don’t get caught by surprise in the future.
Other Car Purchases
If your car costs $30,000 or more (excl GST), you purchase after 30 June 2020, or you choose not to claim the Instant Asset Write-Off, then you’ll claim normal small business depreciation instead, which is 15% of the purchase price in the first year, and 30% of the written down value every year after that.
- Lease or Rental: You can claim a tax deduction for the cost of your lease/rental repayments (excl GST) for the year multiplied by your logbook percentage. You cannot claim the cost of buying the car itself, because technically it is the lease/rental company who purchased the car, not you.
- Salary Packaging: You cannot claim a tax deduction for salary packaged expenses, because you have already received the tax benefit through the salary packaging. You can claim any expenses you pay for out of your own pocket (i.e. outside of the salary packaging) as long as you have kept a logbook.
In all of the above situations you MUST keep a valid ATO-compliant logbook to claim these deductions. Otherwise you cannot claim the instant write-off, depreciation, loan interest, fuel or any other car running costs, and you’ll instead be limited to just the cents per kilometre method, which is a maximum tax deduction of $3,300. See our blog post on Tax Deductions for Uber Drivers for more information on keeping a logbook.
Selling A Car
If you are selling your old car, trading it in or you stop driving for Uber, and you claimed that car as a business asset for Uber (i.e. you claimed depreciation and other tax deductions), then you must pay tax on the sale. Alternatively, if your old car was never used for Uber, or was only used briefly tax doesn’t apply.
If your car is considered a business asset, you’ll pay GST of 1/11th on the sale price on your next BAS (even if you sell the car privately). Then, on your end of year tax return, you must make a ‘balancing adjustment’ on the difference between the depreciated value of car in your tax return and it’s actual sale price. This is best explained with an example:
- Purchase price = $10k
- Depreciation claimed over time owned = $3k
- Written down value = $10k – $3k = $7k
- Sale Price = $8k (excl GST)
- Depreciation Overclaimed = $8k – $7k = $1k = taxable Balancing Adjustment to be taxed at your marginal tax rate
In the eyes of the ATO, you have claimed $3k of depreciation but based on the sale price we now know it actually only depreciated $2k. Therefore you must declare the $1k of depreciation that you ‘overclaimed’ as taxable income to bring things back into balance. This works in reverse too. If you sell your old car for less than its written down value this means you have under claimed depreciation, so you can claim a tax deduction for the difference.
A note for those thinking of claiming the Instant Asset Write-Off on a new car. Once you claim the Write-Off, the written down value of the car is immediately reduced to $0, as you’ve claimed all the depreciation up front. This means that when you either sell the car or stop driving for Uber, the taxable balancing adjustment will be the whole sale price/market price of the car, subject to your business use percentage of course. This can add quite a chunk to your tax bill, especially if you’re not claiming a new car to offset it. We recommend you always seek tax advice before claiming the Instant Asset Write-Off.
- Name and ABN on the Invoice: For GST purposes, for a purchase over $1,000 your ‘identity’ must appear on the invoice. This can be either your name and address, or your ABN. Otherwise you cannot claim GST on the purchase of your car.
- Invoice for a Private Sale: The ATO understands that when buying a car privately you won’t get a formal tax invoice. You should instead write your own receipt for the purchase of the car, showing the name, address and contact details of both you and the seller, the purchase date, price, and registration number or VIN number. Both of you should sign and date the receipt. You should also keep copies of bank statements or bank cheques or other proof of payment.
- Buying in a Spouse’s Name: The ATO’s rules are inconsistent on this. For income tax the ATO accepts that spouses often register assets or pay expenses on behalf of each other or in each other’s names for various reasons. So as long as the vehicle is genuinely for your Uber driving you can still claim depreciation in your tax return. The same is true for any running costs that your spouse pays for. GST is different, for expenses over $1,000 you can only claim GST credits if your name appears on the invoice. Therefore if you are purchasing a car from a dealer and wish to claim for GST you should make sure the car is in your name.
- Business or Private Registration and Insurance: The ATO doesn’t care whether you register or insure the car as business or private, you can claim tax deductions either way. You should find out the requirements of your insurance company and the road traffic authority in your state to determine how you should register and insure your car.