How you can claim half or full price off your next work vehicle
Business-related vehicle purchases up to $150,000 qualify for an instant asset tax write-off.
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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 instant asset tax write-off, and until 31 December 2020 the instant asset tax write-off has been raised to $150,000.
This law was changed in response to the coronavirus pandemic, and is an attempt to stimulate the economy in a difficult time for business. Originally the increased asset write-off was intended to revert to a lower figure on 30 June 2020, but on 9 June 2020, the government announced it will extend the $150,000 instant asset write-off until 31 December 2020. Previously to this, the instant asset tax write-off was raised to $30,000 on 2 April 2019. Depending on when you have bought, or are going to buy a vehicle for business purposes, will affect the amount that you can write-off in your next tax return.
What's in this guide?
- What is the Instant Asset Tax Write-Off?
- Are you in a small business? Here’s how the $150,000 instant asset tax write-off works.
- Business lenders you can compare
- How we can help you pick a business vehicle
- So, how does this work when it comes to buying a car?
- What vehicle should I buy for my business?
- What other benefits are on offer?
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?
This ruling applies to businesses with annual turnovers of less than $500 million for vehicles purchased after 12 March, and for vehicles purchased before, an annual turnover of less than $50 million. Businesses can claim tax deductions on any number of sub-$150,000 or sub-$30,000 purchases they make from the legislative passing of the law on 2 April 2019 (for $30,000) or the 12 March 2020 (for $150,000) to 31 December 2020. As of 1 January 2021, the threshold will revert to $1,000.
To qualify for the $150,000 instant asset tax write-off, businesses must have an annual turnover of less than $500 million. For the $30,000 instant asset tax-write off, businesses must have an annual turnover of less than $50 million.
Are you in a small business? Here’s how the $150,000 instant asset tax write-off works.
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 the threshold 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 31 December 2020, the value of this pool falls under $30,000, you can look forward to its immediate deduction as well. How precisely the small business pool works in regards to the $150,000 instant asset tax write-off is at the moment unclear, so it's a good idea to contact your accountant, or the ATO directly on the matter.
Business lenders you can compare
How we can help you pick a business vehicle
There are dozens of car brands and hundreds of unique models to choose from, in varying body styles. Throw into the mix the normally multiple engine capacities and fuel type variants, as well as the need to pick a transmission (and trim grade) - then narrowing down your shortlist to just one or two vehicles can seem overwhelming.
Let us help you pick the right vehicle for your business
We compare four or five expert car reviews, condensing them into one, easy to digest overview. We also compare the scores given to vehicles, to help you better gauge how good a model truly is. We try to cut the usual automotive jargon to help save you time and frustration.
We also collect together some of the best car deals, saving you money and making your budget stretch further. And if you're looking for car loans and a vehicle financing guide, we've got you covered there too.
So, how does this work when it comes to buying a car?
What percentage is the car to be used for business purposes?
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 $150,000 after 12 March 2020 or $30,000 before 12 March 2020, 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 the threshold. Vehicles with a value over the threshold must be added to the Small Business Pool.
What vehicle should I buy for my business?
Struggling to understand which vehicle to buy? Here's a quick primer to help make the decision process easier.
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?
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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