Using a business vehicle for work is a great tool for those who do consistent work travel and need on-the-road marketing, plus buying one involves some tax benefits too. One of these benefits is getting an up-front tax deduction under the instant asset write-off scheme, or alternatively claiming depreciation under the ordinary depreciation rules.
When it comes to claiming vehicles, many people get depreciation and GST claims wrong.
Want to know the correct claims you should be making? Read more from your Gold Coast Accountant at Crest Accountants to find out.
Instant asset write-off and business vehicles
The instant asset write-off scheme was introduced, affording most small to medium businesses the opportunity to immediately write off the cost of work-related purchases, such as a work vehicle or office computer system.
Due to COVID-19, the Australian Government has upped the limit and broadened the criteria for who can use this scheme.
As of March 12th, 2020:
- The scheme was increased from $30,000 to $150,000, and
- Extended to businesses with an annual aggregated turnover of less than $500 million. The original deadline was June 30th, 2020 but has been extended to December 31st, 2020.
- After December 31st, 2020 the instant-asset write-off will revert to $1,000 for small businesses with aggregate turnover less than $10 million.
For passenger vehicles that are “designed to carry a load less than one tonne and fewer than nine passengers,” the total amount you’re allowed to claim as a tax deduction is $59,136 for the 2020/2021 year. This is known as the Car-limit. According to the ATO, anything above that limit “cannot be claimed under any depreciation rules as a tax depreciation.”
Who’s eligible and when is the deadline for instant write-off eligibility?
- Most small and medium business entities are eligible. However, as a small business, you’ll need to elect to use the simplified depreciation rules, in order to claim. Check with your Gold Coast accountant to find out if yours qualifies.
- Any car or motor vehicle, new or used, may qualify – provided the purchase cost was under $150,000 of course.
Note: You cannot claim the instant asset write off until the asset is installed and ready for use.
No – it doesn’t mean if you buy a car for work purposes that is up to $150,000 that the Australian Government gives you $150,000 cash back however you would get a deduction on $150,000 i.e. if the tax rate is 26% then the income tax benefit is $39,000 ($150,000 x 26%).
It’s not that simple, we’re afraid – but don’t worry, your Gold Coast Accountant will show you how it works.
Claiming GST on business vehicles
Let’s have a look at a case scenario of the instant asset write-off in motion:
Kevin runs a small business through a company structure. His company is registered for GST. Kevin’s company purchases a passenger vehicle for $77,000, inclusive of GST.
Even though this is well below the $150,000 limit and his business is eligible for the instant asset write off, the amount he can claim is restricted to Car Limit. For the 2020/2021 financial year the Car Limit is $59,131. The GST listed on the tax invoice may be $7,000, however the maximum Kevin can claim back on his company’s Business Activity Statement is $5,375 (1/11th of car-limit).
If Kevin is to later sell this car and let’s say he sells it for $66,000 GST inclusive, then unlike the purchase, the GST payable to the ATO is $6,000 (1/11th of total sale price not just the car-limit). This is due to the ATO discouraging business owners to purchase luxury cars in businesses.
Confused? That’s okay. Talking to your Gold Coast Accountant will help you understand your instant asset write-off eligibility, GST claim potential and allow you to maximise your business tax return.
Let your Gold Coast Accountant help you
In these trying times, there are many government schemes and business packages to help small to medium businesses.
Let’s work through them together to get to the other side.
Need help with business accounting? Contact Crest Accountants today for simplified accounting solutions for depreciation, instant asset write-offs, business accounting advice and more.
