Mobile Therapists Using Their Own Car For Work – FAQs

If you have enough cash available (obviously while maintaining an adequate safety buffer for any unforeseen events), you should buy the car in cash.

Whereas, if you don’t have sufficient cash, or you have a better use for your cash (such as saving for a home deposit) then you would use finance.

Basically, you are always better to avoid paying extra costs – interest on a loan being one of these.

For example, on a $30,000 car loan you might end up paying $5,000 in interest. Sure, you can claim this interest as a deduction in your tax returns, but it may only save you $1,700-$1,800 in tax.

So you’ll have paid $5,000 and saved $1,700-$1,800. You’re out of pocket $3,200-$3,300. Hence, paying interest is only something you would do if it’s the only option available.

• It’s going to be easier to obtain finance approval if you are currently employed and have been in your job for more than 3 months. Therefore, be careful if you are changing jobs.
• Obtaining finance from a car dealership is generally the easiest option (largely because they are motivated to sell the car). However, warn them you are going to get a 2^nd finance quote, so they’re more likely to give you a fair deal. Then follow through and request a 2^nd quote from a finance dealer or a bank.
• It can be difficult to easily compare two different finance quotes. This is because each lender will have their own way of charging an interest rate, establishment fees, on-going fees and so on.

The easiest way to do a comparison between two finance options is:

• To firstly ensure that both options have the same terms (ie: both loans are for the same length of time and both have either no balloon payment or the same balloon payment)
• Then you can simply compare the regular repayment amounts, to determine the cheaper one.
• When dealing with the car salesperson, you’ll notice that they often try to talk about finance repayments, rather than negotiate about the sticker price of the car. For example, if the car is $20,000 and you want to negotiate a $18,000 price, the salesperson will usually try to take your focus off this, and instead talk monthly repayments that would apply to any finance.

In our opinion, finance shouldn’t even be part of the discussion until the car price is agreed, then you find the best finance deal.

Allowing the salesperson to combine the two just gives them more opportunity to confuse you.

You’ll need a 12-week logbook for each car that you use for work. (If you change cars then you’ll need to complete a new logbook)

This logbook can then be relied upon for 5 years (unless your use changes significantly – for example you cease your mobile role and start working more from a clinic, or if you started making long interstate drives for personal purposes one year).

So whilst you won’t necessarily need to complete a new 12-week logbook each year, it is a good idea to record your odometer reading at the start and end of each financial year (this can help your accountant understand your volume of travel).

The logbook will calculate the percentage of time you use your car for work versus personal purposes. For example, if you travel a total of 4,000km over the 12 weeks, and 3,000km of those were for work, then your logbook percentage would be 75%. This means you can claim 75% of your car expenses.

Logbooks can be electronic (using an app or spreadsheet), or a pre-printed version from a stationery store.

Your logbook must contain the following details for every journey over the 12 weeks (both work and personal):

• The date of travel
• The reason for travel (either work or personal, but include a description if it was for work)
• Odometer readings at the start and end of the trip
• Kilometres travelled

What trips are considered work travel? Whenever you need to drive to a changing work location, then this will be work travel. For example, driving to the home of a patient.

However, if you are driving from your home to a regular place of work (for example, if you work from a specific clinic or predetermined gym for one day every week) then this would be private.

Novated leases are often seen as a great way to save tax – but it’s worth understanding them a little more and comparing a novated lease to other options. In reality, the potential tax advantages associated with a novated lease are often overstated (some might say misleading), especially for mobile therapists who will use their car a lot for work.

What is a novated lease?

In many ways a novated lease is similar to buying a car on finance. In this case though, your employer is the one that makes the repayments and those repayments will also include your car’s running costs, such as fuel, registration, insurance and maintenance.

Your employer then recovers this cost by making deductions from your payroll. For example, if you would normally receive $2,000 after-tax in your pay, you might now receive $1,600 (And this is why a novated lease is often referred to as ‘salary packaging’.)

Some of these payroll deductions will reduce your tax – and this is the reason novated leases are heralded as a tax saving mechanism. You’ll receive this tax saving within your payroll rather than at the end of the year when you lodge your tax return. In fact, you won’t claim any car costs in your tax return at all.

Just like having a car on any other type of finance, you get to drive the car for both work and private purposes. You may still need to prepare a 12-week logbook.

To make record keeping easier, the novated leasing company will usually provide you with a particular debit card from which you’ll make any car-related purchases (such as fuel, rego, insurance etc)

Generally speaking, if you change jobs you can take your novated lease to your new employer.

How much tax will I save using a novated lease?

There are a number of tax rules that impact the benefits that you may gain from a novated lease – mostly relating to a concept known as fringe benefits tax.

It’s the complicated workings of fringe benefits tax that can make a novated lease a less attractive option for a mobile therapist.

Whilst it’s certainly true that you will reduce your tax when using a novated lease, whenever you are using your car a lot for work, you’ll often save a lot more tax if you simply bought the car yourself (whether in cash or on finance) and claimed your costs in your tax return, based on your 12-week logbook.

The reason for this is that the novated leasing company is usually going to use the easiest methods to account for the fringe benefits tax outcomes. And the easiest methods generally don’t save you the most tax.

All novated leasing companies generally advertise significant tax savings – but the piece missing from their advertising is the amount of tax savings you could have made yourself if you simply bought the car and claimed the costs in your own tax return. Instead, their advertising always seems to compare a novated lease’s tax outcomes, to never even claiming a tax deduction for your car at all.

When does a novated lease make sense from a tax perspective?

Whilst it might not be a suitable option for a mobile therapist, a novated lease can be a good tax-saving strategy when:

• You are a high-income earner (especially if you earn more than $180,000).
• You (or your spouse) need a car that’s relatively inexpensive (the cheaper the car, the greater the tax benefits). Once the car costs $50,000 or more the tax benefits largely disappear.
• You hardly ever use your car for work purposes (or it’s a car that your spouse drives and they hardly use it for their own work purposes) and hence wouldn’t have normally been able to get any tax benefit if you owned it personally.

If you meet those three conditions then it’s certainly worth considering a novated lease.

When an employer pays a travel or motor vehicle allowance, they are basically acknowledging that you personally are bearing some costs when working, and this is their way of helping to contribute towards those costs.

For example, if an employer pays a $6,000 per annum travel allowance, they are effectively saying “Here’s $6,000 to help cover your vehicle running and purchase costs”.

The $6,000 will be taxable income – however you would claim your actual vehicle costs against this. (For example, you might have $5,000-$6,000 of fuel, rego, insurance, repairs and depreciation costs)

When your employer pays such an allowance it can actually be quite useful at lowering ATO attention. For example, the ATO wouldn’t usually expect a psychologist, exercise physiologist, occupational therapist or speech therapist to have significant motor vehicle deductions each year. This is because these professions have historically not had many people claiming such costs.

As a mobile therapist, you are obviously well within your rights to claim your motor vehicle costs, but it can stand out to the ATO compared to others in the same profession.

However, when your employer specifically pays a travel or motor vehicle allowance then the ATO are able to factor this into their assessment and understand that this is an expected deduction.

You should track the following running costs for the entire year (ie: whether you incur them whilst driving for work or personal purposes):

• Fuel
• Insurance
• Repairs and maintenance, including car washes
• Modifications to the vehicle
• Registration

There’s two other costs that you will need to track:

• Tolls: This can be tricky if you also incur tolls for your own private travel. You’ll need to identify exactly how much is paid just for work purposes.
• Parking: If you’ve paid for parking whilst driving for work (note: this doesn’t include parking at a regular workplace, such as a clinic) then you should also keep track of these costs.

Tips on how to make this easy:

There’s no better way than just opening a standalone bank account that you use only for vehicle costs.

Simply transfer enough funds into a new account, label your associated debit card “Car” and then use this for all such costs.

This way, at the end of the tax year, you can simply provide your accountant with a download of your transactions in that account for the full year – making the tax return much easier.

This can be a tricky question as there are often a number of variables.

But one of the key differences between being provided a vehicle by your employer versus owning your own, is the degree of control you have over your finances. For this answer we’ll focus solely on this specific difference.

When your employer provides the car:

• The car isn’t free: It’s worth remembering that you are still bearing a cost. For example, because your employer is providing you with a car, they’ll likely be offering you a lower salary. Additionally, there will usually be some form of post-tax deduction from your pay, representing your personal use of the car (unless you work for a charity or not-for-profit perhaps).
• Mandatory replacement: Your employer will often replace their fleet every 3-5 years. On the surface it seems attractive to always be driving a reasonably new car. But you are still bearing a portion of this cost. (eg: your lowered salary and post-tax deductions will no doubt take into account the fact you are always driving a pretty new car) If you would have been happy to keep your 5 year old car, then a mandatory replacement isn’t such a financially attractive outcome.
• No car when you leave: You’ll have been receiving a lowered salary and post-tax deductions for every year that you were employed – but when you leave you’ll have no car of your own.

When you buy your own car:

• You’re responsible for the record keeping: You need to keep tidy records in order to prepare a tax return and claim all the costs you’re entitled to.
• You have control: Even if you buy your car on finance, after the 3-5 years repayment term, the car is yours.You can continue to use it or choose to sell it.You’re not forced to upgrade to the latest model if you don’t want to.
• You can spend as much as you want: Whilst you’ll no doubt need a reliable and presentable car, you have the ability to be more prudent (or more lavish if you wish). For example, you might be able to get a good car for $15k, whereas your employer might have had you driving a $30k car – and your salary would have borne the cost of that.

For the reasons above, on the subject of control alone, I would generally suggest buying your own car as opposed to using a company vehicle.

There are some unique circumstances though, such as when you work for a charity or not-for-profit who receive special tax exemptions. In those cases there can be tax outcomes that make company vehicles a more compelling option. (An employer in that space would be able to explain this to you)

Not if you are only concerned about your finances and tax outcomes.

If you have a reliable car that suits your work and private needs, there is absolutely no tax reason to upgrade it.

Rather, you should only upgrade your car if the current one no longer fits your needs, if it’s unreliable or you simply have a desire to spend money on a new car. Tax should not be a decisive factor in your decision.

Buying a new car will simply mean you have increased your costs. At the very least, you’ll have needed to invest more money in the actual purchase of the vehicle.

For every $1,000 you spend on your new car, you might save $350-$390 of tax, but you’re still out of pocket for the difference.

Therefore, tax deductions alone is certainly not reason enough to upgrade your car.

If you’re considering spending more than $60,000 on your car then you should be aware there are limitations to the amount you can claim in your tax return.

The ATO’s Car Limit means that you can only claim up to $60,733 (in the 2021-22 tax return year) – so anything you spend beyond this won’t be claimed in your tax return.

Let’s say you purchase a new vehicle for $25,000 and you’re likely to get a good 8 years out of the car.

The ATO are happy for you to claim the $25,000 cost (subject to your logbook), but the catch is that it must be spread over the 8 years. The spreading of this cost is known as depreciation.

This means you might claim $3,125 of depreciation each year – which is simply $25,000 divided by 8 years. (There are other ways to calculate depreciation, but this is a simple way to understand it)

If you claim $3,125 of depreciation each year, you might save $1,000-$1,200 of tax each year.

The ATO are ok with this as they accept that your car is declining in value each year. Whilst it’s hard to work out the exact drop in value, they are happy with such a calculation.

Potentially yes.

It depends upon the amount of depreciation you have claimed and the sales/trade-in price of your car.

For example, let’s say you bought a car for $25,000 and then claimed $9,000 of depreciation over the next 3 years.

From the ATO’s perspective, the car is now worth $16,000. ie: You have been able to claim tax deductions suggesting the car has devalued to now be worth $16,000.

However, if you then sell the car for $17,000, it means you have claimed too much depreciation. More specifically, you have claimed $1,000 too much in depreciation. And this is the amount upon which you will be taxed. (This is not a bad thing though. You should always seek the highest possible sales price, even if it means some tax as you get to keep the difference.)

On the other hand, if you sold the car for $14,000 then rather than having claimed too much in depreciation, you won’t have claimed enough. In this case, you’ll be able to claim an extra $2,000 in depreciation. (Extra depreciation is not a good thing though. It would have been better if you could have sold the car for $17,000)

All that being said, oftentimes the exact tax outcome from the sale of a car isn’t directly felt. This is because it’s usually replaced in the same year with a new car, also used for work. Therefore, even if you have some tax to pay on the sale of the first vehicle, the deductions on the new car tend to balance that out.