Who should own a business car: the Company or Me?
A car purchased has certain advantages for the owner, be it the owner or employee. In this situation, lets look at the business ownership vs individual ownership:
With effect from 15th June to the end of December 2020, tax exemption for purchase of passenger cars:
i. Full sale tax exemption on locally assembled cars;
ii. 50% sales tax exemption on imported cars.
The benefits of business ownership:
1.The company will be able to capture the depreciation expenses when the car hits the road. In Malaysia, the standard depreciation rate for the motor vehicle each year would then be 20%;
2.The general auto expenses for business use like petrol, upkeep, tires & insurance is deductible;
3. Interest on the car loan is deductible as recorded as necessary business expenses;
4. For some cases, insurance for company-owned car might be cheaper than business owner ownership car as business can get leased-car rates;
5. If the business-owned car is involved in accident, the driver's personal insurance and liability is limited (it applies to Sdn. Bhd. ownership);
6. Capital allowance is applicable as the expenditure is used for business purposes where the claims will reflect in the Tax Return Form in which the initial allowance is 20%.
a.With effect from year 2001, the qualifying amount increased from RM 50,000.00 to RM 100,000.00 with the condition that the motor vehicles is a new motor vehicle and on the road purchase price does not exceed RM 150,000.00.
b. The purpose of capital allowance is to give relief for wear & tear of fixed assets for the company; for example motor vehicles, machines, office equipment & furniture.
The business owner (employer) ownership:
1.The business owner can lease the car to the company due to company use of the vehicle;
2. Loan interest is not deductible;
3. Only un- reimbursed business expenses may be deductible and you cannot take those tax deductions for the expenses if it is reimbursed by the business;
4. Personal registered motor vehicles is not applicable to claiming of capital allowance.
What about leasing a car for business use by staff?
If you lease a car for a staff, basically you do not have much control over the maintenance, mileage or beneficial but if the company owns the car, the company will have the control on the usage and keeping cost low.
Therefore, the business can consider of buying the car for employees if they are to drive them for business. Before that, ensure that the employee to know the Benefit-In-Kind value for the car:
Cost of vehicle (RM) Annual BIK (RM):
Up to 50k @RM 1,200.00
50k – 75k @ RM 2,400.00
75k – 100k @ RM 3,600.00
100k – 150k @ RM 5,000.00
150k – 200k @ RM 7,000.00
200k – 250k @ RM 9,000.00
250k – 350k @ 15,000.00
350k – 500k @ RM 21,250.00
Above 500k @ RM 25,000.00
Note the next price bracket in the table above starts at XXX,XX1. For example 150k – 200k should be read as 150,001 – 200,000 and so on. If the employee doesn't wants to be tax on the BIK, do have a system to monitor it as the user needs to park the car at the company's garage after working hours.
LHDN (LHDN Rulings PR_6_2015)