How you can claim half or full price off your next work vehicle
Business-related vehicle purchases up to $30,000 qualify for an instant asset tax write-off.
Small business owners across Australia have reason to celebrate, given a significant increase in what they can claim in the form of tax deductions. If you, as a small business owner, have been considering buying a new or used car, now is a good time to put your plans into action, all thanks to the $30,000 instant asset tax write-off.
The benefits aren't limited to just buying a car. You can also claim tax breaks on various other business-related purchases as long as they don’t exceed the newly prescribed threshold.
What is the Instant Asset Tax Write-Off?
As part of a 2019 Federal Budget ruling, small business owners can continue to claim tax breaks on purchases up to $30,000 ($29,999). If businesses are registered for GST, then the overall cost of the asset can increase to $32,999 as the business can claim $2,999 as an input tax credit.
This ruling applies to businesses with annual turnovers of less than fifty million dollars. Businesses can claim tax deductions on any number of sub-$30,000 purchases they make from the legislative passing of the law on 2 April 2019 to 30 June 2020. As of 1 July 2020, the threshold will revert to $1,000.
Are you in a small business? Here’s how the tax break works.
Here’s what small business owners need to know about how this tax break works.
- Apart from having a turnover of less than fifty million dollars, your business should be able to demonstrate activity through quarterly business activity statements and it should be trading actively.
- Purchases of less than $30,000 now become instantly tax deductible, meaning you don’t have to claim these purchases as deductions over a span of several years.
- Some of the purchases that qualify for this tax break include equipment, machinery, furniture, tools, vehicles and just about any asset involved in running your business.
- Non-deductible items include plants, inventory/stock and in-house developed software.
The Small Business Pool
While purchases that exceed this threshold don’t qualify for instant write-offs, you can still expect to write them off over a prolonged period. You allocate assets more than $30,000 in value to a General Small Business Pool and work on their depreciation at the same rate.
For the first year, depreciation is 15%, and it becomes 30% in the following years. If, before 30 June 2020, the value of this pool falls under $30,000, you can look forward to its immediate deduction as well.
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So, how does this work when it comes to buying a car?
While businesses can consider buying used vehicles, know that you can even get a micro car, a light car, an entry-level small car or a base grade van for less than $30,000. It should be expected that car dealerships will give you plenty of opportunities to take full advantage of the tax break by offering car deals for less than $30,000. What also helps is that this tax break applies even if you plan to buy a car using finance.
What percentage is the car to be used for business purposes?
How much you can write off in tax will depend on how much of the car will be used for business purposes. If the car is 50% for business purposes and 50% for personal use, you will only be allowed to write off 50% of the value of the car (as long as the car is under $30,000).
For example, if you purchase a car for $25,000 that's 50% for business purposes, you can write off $12,500 immediately in your 2019 tax return. If the same car was for 75% business purposes, you could write off $18,250 of the car's value.
However, if you purchase a car for over $30,000, the car would not qualify for the instant asset tax write-off. This is true even if the percentage of the car's value that you can claim is under $30,000. Vehicles with a value over the $30,000 threshold must be added to the Small Business Pool.
What else can you claim in tax for the vehicle?
Please note that for a sole trader or a partnership, a logbook is required. For a company or trust, a Fringe Benefit may arise.
- You can claim up to 68 cents per kilometre travelled for business purposes.
- If you purchase the car, you can claim the expenses incurred in running the car to the extent it was for business use.
- For cars that aren't instantly written off, the vehicle depreciates in value, and you can claim this cost annually as part of the car's expenses.
- You can claim the cost of insurance, loan interest, fuel, servicing and repairs as operating costs.
- If you’re leasing a vehicle, you can deduct the lease payments from your business’s taxable income. Again, if you lease the car, you are not purchasing it until the final payment, so the lease cost forms part of the running expenses. This is not to be confused with a "Hire Purchase" arrangement where you buy the car and can claim interest on the loan as part of the running costs.
What other benefits are on offer?
You don’t have to use this tax break just to buy a vehicle. You can also make use of it in various other ways.
- If you own a restaurant, you can buy new furniture, kitchen equipment and even uniforms for your staff. Keep in mind that you can claim uniforms elsewhere depending on certain conditions
- As a tradesperson, you can think about buying new tools or even a computer
- Small scale industries can consider buying machinery
This tax break is not the only piece of good news for small business owners. Incorporated businesses with turnovers of less than ten million dollars now pay a lower tax rate of 28.5% as opposed to 30%. If you run an unincorporated business, such as a partnership or as a sole trader, you stand to get a 5% discount from 1 July 2015, not exceeding $1,000 per year.
If you qualify for the instant asset tax write-off, now could be the perfect time to buy a car for your business.
DISCLAIMER: Many of the comments in this article are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information applicability to their own particular circumstances.
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