Want to pay half price for your next work vehicle?
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 a recent announcement through the Federal Budget.
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 Small Business Tax Break?
As part of a 2017 Federal Budget ruling, small business owners can continue to claim tax breaks on purchases up to $20,000.
This ruling applies to businesses with annual turnovers of less than ten million dollars and they can claim tax deductions on any number of sub-$20,000 purchases they make from the legislative passing of the law to June 30, 2018.
Are you in a small business? Here’s how the tax break works.
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.
Business lenders you can compare
So, how do you pay $10,000 for a $20,000 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 $20,000. 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 $20,000. What also helps is that this tax break applies even if you plan to buy a car using finance.
Over time, if you make your claims in the right way, you can actually end up saving around half of the car’s cost in the form of taxes. Here’s what you can do to claim back as much as $10,000 on a $20,000 purchase. Please note that for a sole trader or a partnership a log book is required, and for a company or trust a Fringe Benefit may arise.
- You can only claim a maximum of 5,000 kilometres in one year
- If you purchase the car you can claim the expenses incurred in running the car to the extent of business use
- In time, 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’ taxable income. Again, if you lease the car you are not purchasing it until the final payment – the least 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.
How to finance your new car purchase
What other benefits are on offer?
You don’t have to use this tax break just to buy a vehicle, and you can 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 like a partnership or as a sole trade you stand to get a 5% discount from July 1, 2015, not exceeding $1,000 per year.
If you qualify for the tax break, 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
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 that 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 for deductions on ATO page here.
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 refinancing you’d be switching to a different lender that will offer you lower interest rate and help you manage your balloon payment. Although this is not a new purchase but you’ll be going through an application again and meet the lender’s criteria to get approved. Please check our guide on this page on 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 for car expenses, you may refer to this page — .
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 moneys 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 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 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 a professional advice from a tax specialist who can explain to you in detail about this 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 and find more information on this page. 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