Pitfalls of Buying Luxury Cars in a Trust or Company for Medical Professionals

In recent years, many medical professionals have opted to purchase luxury vehicles through structures like trusts or companies. Guided by their accountants, some aim to claim up to 70-95% of the associated vehicle expenses as tax deductions, justifying this by citing work-related use, such as commuting to hospitals and managing a home office.

However, the Australian Taxation Office (ATO) has clear guidelines that challenge many of these assumptions. In this article, we break down why commuting is generally not deductible, how Fringe Benefits Tax (FBT) can erode your tax benefits, the limits on claiming GST and depreciation, and why Electric Vehicles (EVs) might offer a better solution. 

Home to Work Travel is Private Use (ATO Guidance) 

Many medical practitioners operate under the misconception that designating their home as a “home office” renders any travel from home to the hospital as work-related travel. This belief is incorrect in most cases. 

"Travel between home and a regular place of work is generally private and not deductible, even if incidental tasks are performed at home." — TR 2021/1 

Why the “Home Office” Argument Fails: 

• Engaging in activities such as checking emails, processing billings, or reviewing patient reports at home does not establish the home as a business premise.

• Simply designating a space as a home office does not transform commuting into work-related travel.

• Commuting from home to the clinic or hospital remains private in nature. 

What Counts as a Home-Based Business (for Car Deduction Purposes): 

• A dedicated area used exclusively for business (e.g., a telehealth clinic) 

• Patients visiting your home office 

• Commercial signage, separate business entry 

• Registered business address used for professional services 

⚠️ CGT Warning: Using part of your primary residence for business purposes (beyond just administrative tasks) can reduce your main residence exemption. Partial Capital Gains Tax (CGT) may apply when you sell. Refer to ATO rulings TR 93/30 and TD 1999/66. 

What Qualifies as Work-Related Travel: 

✅ Between two hospitals or clinics 
✅ From home to a temporary workplace (conference, locum site) 
✅ When carrying bulky equipment essential for work in limited circumstances 

What Doesn't Count: 

❌ Home to hospital and back 
❌ School runs, errands, coffee detours 
❌ Trips to the gym or picking up supplies for non-work use 

The FBT Trap

Purchasing a vehicle through a company or trust, which is subsequently used by the director or beneficiary (e.g., the medical professional), incurs Fringe Benefits Tax (FBT) on any private use. 

FBT Calculation Methods: 

1. Statutory Method 

• Applies by default, unless the operating cost method is chosen and supported by a valid logbook 

• Uses 20% of the vehicle’s base value, regardless of how much business use occurred 

2. Operating Cost Method 

• Based on actual business vs personal use 

• Requires a 12-week logbook, refreshed every 5 years 

• More accurate but requires diligent record-keeping 

• Deemed Interest and Depreciation amounts capped. 

📌 Key Clarification: The statutory method is not limited to >20% business use. It applies by default if no valid logbook is maintained, regardless of business use percentage. 

EXAMPLE

Vehicle cost (incl. GST): $165,000 

• Statutory FBT base: 20% = $33,000

If no employee contribution is made:

• Grossed-up value (Type 1): $33,000 × 2.0802 = $68,646

• FBT Payable: 47% × $68,646 = $32,263 annually

If the practitioner contributes $33,000:

• FBT liability is nullified 

• Typically processed as a journal entry by the accountant, debiting the director’s or beneficiary’s loan account. 

• This amount becomes assessable reimbursement income for the business.  

Net Tax Impact with Employee Contribution

• Reimbursement income (ex-GST): $30,000 

• Deductible vehicle expenses: $24,151* 

• Net income = $5,849 

• Tax at 47% = $2,749 

• GST payable = 1/11 of $33,000 = $3,000

🧾 Total Annual Tax + GST = $5,749

💸Total Outflow Over 5 Years: $5,749 × 5 = $28,745

⚠️ Important Notes: 

• If no contributions are made, the full gross-up and FBT apply, significantly increasing costs 

• The company must still account for the $30,000 reimbursement as income, pay GST, and watch for Division 7A risks if the loan account is overdrawn 

• There is no real tax saving — just a shift in how it’s taxed. 

GST Limits on Luxury Cars 

Car depreciation cap (2024–25): $69,674 

• Maximum GST claim: 1/11 × $69,674 = $6,334 

• Any GST above this amount is non-creditable* 

📌 The ATO states: 
"If the purchase price exceeds the car limit, the maximum GST credit is limited to 1/11th of that limit." 

What About Selling the Vehicle? 

Sale or trade-in at a profit = assessable income 

• Loss = often a capital loss (not deductible against business income) 

• If the original purchase price exceeded the cap, the loss from the excess portion is likely capital in nature 

• Capital losses can only offset capital gains, not ordinary income 

OUR RECOMMENDATIONS

• Salary package an electric vehicle (EV) under the FBT exemption if you're a public hospital employee

• Use logbooks to validate business use and access the operating cost method 

• Consider personal ownership where there is no FBT and less complexity, and reimburse your practice only for genuine business travel

• Consider an EV below the luxury car limit if held in a business name to access higher deductibility with lower fringe benefits cost 

For the majority of medical professionals, the intricacies, compliance risks, and concealed costs associated with holding a luxury car within a company or trust structure far outweigh any perceived tax benefits. Even with FBT Reimbursements, the business ultimately incurs tax and GST, frequently exceeding the costs that would arise if the vehicle were purchased personally and reimbursed for genuine business use. 

⚖️ Need Guidance? 

Don’t let a luxury car become a tax burden. Before buying a vehicle through your company or trust, speak to a tax advisor who understands the medical profession, fringe benefits, and structural traps. 

EXAMPLE 1 - DETAILED BREAKDOWN OF RUNNING EXPENSES (STATUTORY METHOD) 

Total Expenses $24,151 = Insurance ($4,500) + Registration ($1,200) + Fuel ($4,000) + Servicing ($2,500) + Tyres/Repairs ($1,500) + Running Costs ($13,700) + Depreciation [on $69,674 cap @ 25%] ($10,451)

EXAMPLE 2 - GST

Vehicle GST paid: ~$15,000 

• Maximum claimable: $6,334

• Balance (~$8,666) = non-deductible 

Disclaimer

The information contained in this article is for general guidance on matters of interest only and does not constitute financial, tax or other professional advice. The application and impact of laws can vary widely based on the specific facts involved. Accordingly, the information in this application is provided with the understanding that the authors and publishers are not herein engaged in rendering accounting, tax, financial or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, financial, or other competent advisers.

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