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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?
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 $150,000 (net of GST) for vehicles purchased after 12 March 2020 and before 31 December 2020. For vehicles purchased before 12 March 2020 (but after 2 April 2019) the instant asset tax write-off threshold is $30,000.
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.
Here’s what small business owners need to know about how this tax break works.
- Apart from having a turnover of less than $500 million/$50 million your business should be able to demonstrate activity through quarterly business activity statements and it should be trading actively.
- Purchases of less than $150,000 or $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 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.
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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 the threshold specific to your time of purchase. 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 $150,000 after 12 March 2020 or $30,000 after 2 April 2019. 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 $150,000 or $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 $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?
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.
Picture: Shutterstock
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Ask an Expert
My business is a car-body service in Victoria. (panel beater)
I’ve bought 2nd-hand tools & equipments for business operating, which cost approximately around 25-30k.
How can I claim back in this Government tax break?
Hi Carolyn,
Thanks for your question.
Looks like the tax break will only be applicable and can be claimed if you are planning to buy a vehicle/car for your business. If you buy the vehicle you can claim the expenses incurred in running the car to the extent of business use. This was explained in the above as to how claiming the government tax break works. Nevertheless, since you’re running a business, the tools and equipment you bought for operating the business will also have tax deductions. You can get more explanation about claiming deductions from ATO.
I suggest that you speak to a tax specialist for the process and smooth claiming for a deduction for some or all of the cost you incurred in your tools and equipment. Alternatively, you can contact ATO directly for specifics.
Hope this helps.
Cheers,
May
My car finance is about to run out and I will have a balloon payment of $24,000. I use the car for business and have an ABN. If I were to make additional repayments so that my final balloon payment is less than $20,000, and if I were to refinance this amount, can I claim this immediately, or is it not treated as a new purchase?
Hi Terence,
Thanks for getting in touch.
With car loan refinancing, you’d be switching to a different lender that will offer you a lower interest rate and help you manage your balloon payment. Although this is not a new purchase you’ll be going through an application again and meet the lender’s criteria to get approved. Please refer to our guide on refinancing balloon payment to know how you can refinance your existing car loan.
Cheers,
May
Hi, I work as a courier and use my van every day. I do have an ABN. I am still paying my car loan. My accountant lodge the tax return for me and he said the car loan can’t be claimed for tax deductions. Only the interest on the car loan can be claimed. Is this right? Please help me to make this clear as I need to change to
a new van. What is the max amount I can claim?
Your early reply will be much appreciated. Thank you.
Hello Eddie,
Good day! Appreciate you contacting Finder regarding your inquiry today.
In regards to your inquiry about claims on car loan, yes that is correct, you cannot claim on the loan itself. However, you can file claims for interests and other applicable car expenses though since you mentioned that you use the van for business purposes as a courier. For more information regarding when and when you can’t claim car expenses, you may refer to ATO’s car expenses guide.
We are unable to provide you with a max amount as we are not tax experts ourselves and cannot provide random figures as we have no particular basis to compute from. It would be best for you to refer to the page I gave you for the car expenses you can claim, then you can work closely with your accountant so you won’t miss out on anything.
Furthermore, the same rule applies when you buy a new van. So long as it will be used for business purposes, you may be able to claim tax benefits for interests and applicable car expenses.
Hope this helps!
All the best,
Ron
I’m looking to buy a new ute ,l have half the money to put down and borrow the rest or redraw from my mortgage but some people think l get better tax benefits as a sole trader by borrowing the money,can you give me some knowledge of this please
Hello Greg,
Thank you for your inquiry.
Doing a redraw from your existing home loan may cause some fees and minimum withdrawal amount aside from putting you in a backward on paying off your mortgage faster. On the other hand, Taxation Ruling IT 2582 states that the interest incurred on money borrowed will be deductible provided that the taxpayer is carrying on a business and, in connection with the carrying on of that business, the taxpayer borrows money to pay income tax. However, this may put you in a bigger debt over the long-run.
You may consider a chattel mortgage as one of your options. You can talk with your tax accountant or financial adviser to weigh your overall financial resources and goals for this decision.
Hope this helps.
Cheers,
Jonathan
Hi, I work for a furniture company and I need to buy a car that I can use for work and visiting clients.
Is there any tax deduction for this cases? I also have an ABN but I wouldn’t be using the car for my business at the beginning but I will in a year or so. Hope you can help me with some information!
Thanks!
Hello Marcela!
Thanks for the inquiry! :)
You may be able to claim this as a tax deductible depending on certain conditions. As someone who has an ABN, this could be counted towards your business expenses or fringe benefit if you’re a sole trader.
Take note that since you’ll be filing this at another time, about the depreciation value.
You may talk to a tax agent for further advice or seek clarification from your local tax office.
Hope this helps.
Cheers,
Jonathan
Say if I purchase truck $20,000
Winch $ 5000.00
Trailer $ 3,500
Tools amounting to $5000
Can I claim all these even if the total amount is over the (claim tax $20,000) ?
Hi Jared,
Thanks for your question.
Kindly note that purchases of less than $20,000 now become instantly tax deductible, which means that you don’t have to claim these purchases as deductions over a span of several years. If your purchases exceed this amount, it won’t qualify for instant write-offs but you can still expect to write them off over a prolonged period. You allocate assets more than $20,000 in value together 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, by before 30 June 2017, the value of this pool falls under $20,000, you can look forward to its immediate deduction as well.
Kindly note that certain eligibility criteria apply to get this tax break and one of them is that your business must have a turnover of less than two million dollars. Your business should be able to demonstrate activity through quarterly business activity statements and it should be trading actively.
If you need expert advice, it would be good to consult a tax specialist who is more knowledgeable on taxation.
Cheers,
Anndy
Thanks great
Thanks for quick response
I would like to know in what form is the asset deduction purchase returned to you? As a tax deduction? Does the tax office give you $20 000. How does this work?
Hi Ricci,
Thank you for your inquiry and for contacting finder.com.au – a financial comparison website and general information service.
No, the government won’t give you $20,000. Instead, from 30 June 2017, if you are a business owner with annual turnovers of less than two million dollars, you can claim tax deductions on any number of less than $20,000 purchases you make, including but not limited to vehicles, equipment, furniture, tools, machinery and any asset involved in running your business.
You can also seek professional advice from a tax specialist who can explain to you in detail about these tax break benefits.
Cheers,
May
What if I purchase before June 30 2017
Hi Ricci,
Thanks for your inquiry.
For the first year, depreciation is 15%, and it becomes 30% in the following years. If by before 30 June 2017, the value of this pool falls under $20,000, you can look forward to its immediate deduction as well.
Hope this information helped.
Cheers,
Arnold
hi !
sorry i am bit late to read this article.
please help me.
i am interested to buy new car for uber but 30th june is already passed. so what if i buy a car worth 35k. is it still possible i will get tax benefit if written off asset worth 20k next year ?
or is it necessary to buy something below 20k ?
please explain me by considering me lame man
Hi,
Thanks for your inquiry.
Understanding the nitty-gritty of how this tax break works can only help, so here’s what you need to know as a small business owner.
Apart from having a turnover of less than ten 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 $20,000 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
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 $20,000 in value together 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, by before 30 June 2018, the value of this pool falls under $20,000, you can look forward to its immediate deduction as well.
Hope this information helped.
Cheers,
Arnold
I need a car asap. Im on centrelink receive family payments. I am a single mum for 4. 2 younger then 18 and.to over. I do have my abn but atm im waiting for the carers allowance. Im a full time carer of my friend which lives with me who is suffers from the highest level of ptsd. Im new died and i need a new asap. Really to love to buy one that’s still new car warranty so i don’t need to worry for years to come coz the past cars i had i was played and sold lemons . Who can help me plz
Hi Debbie,
Thanks for your question.
You may review the criteria of Centrelink loan brands featured on our website. It outlines the list of lenders who offer loans to borrowers who receive Centrelink benefits. Please contact them directly to discuss your options.
Hope this helps.
Cheers,
May