Tax Saving In Buying Company Vehicle

Through years of practicing licensed income tax and GST consultation, the common concern among many business owners is whether their new private vehicle shall register under company name or personal name.

There is a frequent misconception that register private vehicle under business will help in tax saving. But is that true?

There are a few things we need to consider:
1. Increment and Reduction in income tax
Income Tax Act 1967 Schedule 3 stated clearly that the maximum qualifying expenditure for a private vehicle (not licensed on a commercial basis) is RM50,000 (RM100,000 if the purchased vehicle is a new vehicle and its value is less than RM150,000), this is why everybody believe register private vehicle under company name will save their tax. However, do you know that the person who is using company vehicle for private usage need to pay tax for the benefit he received?

If you are using your company car for private usage (Oh, please don’t tell me you never use company vehicle to transport from your house to office), you are required to declare your benefits in kind in your personal income tax submission. There are two methods to calculate your benefits in kind:

a. Cost of the asset that is provided as benefit/amenity,
Prescribed average life span of the asset
b. The prescribed value method (as per listing shown below)
It is easier to use method b to calculate benefits in kind, if we compare the tax deduction in company tax and the increment in beneficiaries’ chargeable incomes, you will notice that it will only save your tax when you are buying lower value private vehicle
Cost of Motorcar (New) RM Tax deduction (Average in 5 years) RM Increment In Chargeable Income RM Actual Increase or (Decrease) in Chargeable Income RM
Up to 50,000 0 – 10,000 1,800 (8,200) – 1,800
50,001 – 75,000 10,000 – 15,000 3,300 (11,700) – (6,700)
75,000 – 100,000 15,000 – 20,000 4,800 (10,200) – (15,200)
100,001 – 150,000 20,000 6,500 (13,500)
150,001 – 200,000 10,000 8,800 (1,200)
200,001 – 250,000 10,000 11,100 1,100
250,001 – 350,000 10,000 17,400 7,400
350,001 – 500,000 10,000 23,950 13,950
500,001 and above 10,000 28,000 18,000
Please remember that you still need to pay tax for your benefits in kind after you have fully claim RM50,000 – RM100,000 capital allowance on motor vehicle.

* We will not discuss tax deduction in interest payment and balancing charge for disposal of motor vehicle as there are too many uncertainties.

2. Performance in Financial Statements
The depreciation of private vehicle will reduce company net profit, thus registered private vehicle under company name will result in poorer performance financial statement. In worst scenario, it may turn a profit generated company into loss making company.
Motor vehicle hire purchases creditor will be shown in balance sheet too, in most of the case, the motor vehicle depreciation is greater than loan repayment and result in negative equity (value of asset to secure a loan less than the outstanding balance on the loan).
3. Road Tax
The road tax for private vehicles is different when they are registered with different registered owner (register under individual or business). The road tax charges for private vehicle register under business (e.g. sole proprietor, partnership, private limited company or limited liability partnership) is double as compared to private vehicle register under individual. Thus, register private vehicle under business name is generally not a wise choice.
Buying private vehicle and register under company name may appear tax saving. However, when considering the negative impact in financial statement performance and doubled road tax charges, it may not be real saving. Therefore, plan well before you register your private vehicle under your company name!