Buying A Car and Claiming The Instant Asset Write Off

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With the End of Financial Year just around the corner, now is a great time to invest in your business and make the most out of tax time. During this COVID-19 crisis, the Federal Government has announced many economic stimulus packages for businesses to take advantage of; one being the Instant Asset Write-Off. 

What is the Instant Asset Write-Off?

In previous years, the Instant Asset Write-Off scheme allowed businesses, depending on their annual turnover, to “instantly write-off” assets up to $30,000. This meant that eligible businesses could claim accelerated depreciation on assets purchased, allowing them to substantially reduce their taxable income. With less tax to pay, businesses have higher cash flow and are able to inject more money back into their business.

This financial year (2019 -2020), the Federal Government has increased the threshold from $30,000 to a massive $150,000, meaning that eligible businesses can immediately write-off a more diverse range of assets this financial year than ever before. One of the more popular assets being a new car. However, before you run to your local car dealership and throw your money at the best brand new car money can buy, it’s important to understand how this scheme works for you. 

Buying A Car With The Instant Asset Write-Off

With every stimulus package, there are clauses that you need to be aware of. If you are thinking about investing in a new or used car for your business, keep in mind: 

  • Not all cars are eligible for the entire $150,000; 
  • After claiming, you may not claim further depreciation; 
  • If you will be using the car outside of work, the entire amount cannot be claimed; and 
  • The car needs to be “in-use” this financial year.

Nothing too unexpected, however, let’s go through some of the points. 

Not all cars are eligible

If your business purchases a passenger vehicle (designed to carry a load of less than one tonne or fewer than nine passengers), the instant asset write-off is limited to $57,581. For example, if your business purchases a luxury car that is designed to carry passengers for $80,000, the business can only claim $57,581. However, if the business purchases a work ute for $65,000, that isn’t designed to carry passengers (and has been set up with all the trade tools in the tray), the limit for depreciation doesn’t apply. The business can claim a full deduction of $65,000 as an instant asset write-off. (1)

Only one claim

If your business purchases a passenger car or one that is limited to a write-off up to $57,581, it’s important to note that you cannot claim the additional costs under any other depreciation rules. 

Using the car for work & personal use

If the car purchased isn’t going to be used 100% for business purposes, you aren’t able to claim 100% of the write-off. For example, if the car will be used to make personal errands, you will need to deduct the percentage of personal use. If you calculate that 20% of its use will be weekend driving, dropping the kids to school etc, you can only claim 80% of the cost of the vehicle. 

“In use” this financial year

If you do want to take advantage of the Instant Asset Write-Off, the car needs to be “bought and used…in the year you claim the deduction”(2). In other words, the car needs to be registered before June 30. So if you want to take advantage of this tax write-off, you need to get a move on. 

The $150,000 threshold means that your business has more variety and freedom to make good asset investments. So if the timing is right for your business, you can reap an additional reward and splurge on an upgraded work vehicle. It’s also EOFY, arguably the best time of year to purchase a new car. Dealerships are advertising great deals across their new and used car ranges. But you need to be quick. If you are looking at investing in a new work vehicle, let the team at Car Search Brokers help. We’ll take the hassle out of finding the car, snagging an even better deal, sorting finance and getting your new asset on the road. Talk to our team today

 

(1) https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/Simpler-depreciation-for-small-business/Instant-asset-write-off/ 

(2) https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/In-detail/Depreciating-assets/Simplified-depreciation—rules-and-calculations/

Posted on May 20, 2020 in Car Buying Tips