Is my car tax-deductible?
Business owners often have one or more company cars. But did you know that you can deduct a large portion of business-related car and fuel expenses from your taxes? The percentage you can deduct depends on the car's carbon emissions, as well as the date on which you bought, leased or rented the car.
Although the deductibility rules were made uniform for sole traders and companies in 2020, some differences may, exceptionally, still exist.
Which car expenses are tax-deductible?
Since 2020, the law has provided for a gram formula based on CO2 emissions for calculating the deductibility of car and fuel expenses against corporation tax (for companies) and personal income tax (for persons running sole trader businesses).
For passenger cars, dual-purpose cars and even minibuses, bar a few exceptions, minimum and maximum deductibility rates of 50% and 100% apply. The deductible expenses include the following:
- Depreciation of the purchase price
- Non-deductible VAT
- Fuel expenses
- Maintenance
- Insurance
- Road tax
- Vehicle registration tax
- Leasing expenses
- Purchase of spare parts
- Repair costs
- Roadside assistance
- Etc.
Were you also aware that the interest and other financial expenses included in your monthly payments when you finance, hire purchase or lease a car are fully tax-deductible?
Rules may sometimes differ for sole traders and companies
If you run a sole trader business, the car-related expenses are deductible only to the extent that you use that car for business purposes. It is important to bear in mind the following exceptions and restrictions:
- If you work full-time as self-employed in a sole trader business, the carbon deduction formula applies to all car and fuel expenses.
- If you have a secondary occupation, the tax-deductibility of car and fuel expenses depends on the extent of your secondary job activities, because in this situation you also use your car for your main occupation and for private purposes. For this reason, the tax authorities view a portion of the costs as private instead of business-related expenses.
- There are a number of car-related expenses, such as fines, that are never tax-deductible.
With a company, on the other hand, the assumption is that the car is used for business purposes only.
