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The background
So it’s time for a car to join the family. You’ve done some research to find the car that’s going to suit you best. And now its just a matter of finding the cheapest way to get those keys on your keyring. So, you’re asking yourself, can I save tax by putting my car expenses through my business? Will I save more tax by buying or leasing a car?
Car expenses are defined as a “mixed expense”. This is an expense that isn’t solely for the purpose of the business because there’s also a non-buisness or personal benefit from the car. Therefore, only part of the expense can be recognised for tax purposes. (Cars purchased for occupations such as a: taxi driver, driving instructors, etc. will likely not be considered a mixed expense).
What percentage of my car expenses can I put through my business?
The Income Tax Ordinance allows you to recognize car expenses for the purpose of offsetting the business income, if the car is used to generate income.
Car expenses are recognized by the « self-employed » at a rate of 45% (except for L3-class motorcycles where only 25% are deductible).
Alternatively, the full expense can be recognised, less the “value of use” as determined by the Income Tax Regulations. Usually, it is more tax efficient to claim 45% of the expenses.
Which car expenses are can I put through my business for tax purposes?
– Fuel
– Insurance
– Registration fees
– Parking & tolls
– Repairs & Maintenance
– Depreciation
Is buying a car a recognized tax expense?
When you buy a car, on the one hand it’s a big expense, but on the other hand, the car should last a few years. If you sell the car after the first or second year you’ll be able to get most of your money back. Therefore, the Tax Authority don’t allow you to put the entire expense through your business in the year you buy the car. However, they do allow you to recognise the expense of a vehicle via depreciation. This way, you’ll split the expense over a few years and recognise part of the expense in each year. For private vehicles the current rate of depreciation is 15%.
So, if you buy a car for 100,000 ILS, you can depreciate the car by 15,000 ILS each year (that’s 15%). But dont forget, you can only put 45% of that through your business.
can I put my car lease through my business?
There’s two types of leasing in Israel. The first is like a long term rental where the car remains registered in the name of the leasing company. The second, is more like a finance plan, where you buy the car with a payment plan to pay it off.
If you’re lease is like a long term rental, you can recognise 45% of your monthly lease fees for income tax purposes.
However, finance leasing is the same as buying a car. So, you’ll recognise depreciation each year on the cost value of the car.
Reclaiming VAT on your car expenses
You can’t reclaim the VAT on the purchase or lease costs of the car. However, you’ll be able to reclaim the VAT spent on some of the vehicle expenses. As the car is a “mixed expense”, VAT have some special rules:
– Purchase / financing costs: It’s not possible to reclaim the VAT
– Fuel, repairs, parking, toll roads: reclaim 2/3 of the input VAT.
– Registration fee, insurance: these are expenses without a VAT component. So, there’s no VAT to reclaim.
Can an Osek Patur recognize car expenses?
If the vehicle is used to generate your income, you can recognize 45% of the vehicle expenses for income tax purposes. An Osek Patur is not registered for VAT. So, you’ll recognise 45% of the amount actually paid, including the VAT.
Osek Patur Guide
Osek Murshe Guide
Can an Osek Murshe recognize car expenses?
Like any other expense, if the vehicle is used to generate your income, you can recognize an expense. However, as it is a “mixed expense” only 45% of the vehicle expenses can be recognised for tax purposes. An Osek Patur is registered for VAT. So, you’ll recognise 45% of the amount paid less any VAT reclaimed.
