Buying a Car Under the $150K Instant Asset Write-Off
The Federal Government has increased the threshold for instant asset write-off from $30,000 to $150,000 last March 2020, helping you save more on business taxes.
If you’re a business owner or a sole trader who’s planning to buy a new commercial vehicle or upgrade your current fleet or business equipment, you might want to take part in this scheme now.
Originally set to end by June 30, 2020, the $150,000 instant asset write-off scheme has been extended until December 31, 2020. By the end of the year, the threshold will revert back to $1,000 and will only be available for small businesses with an aggregated turnover of less than $10 million.
In the following article, you will learn about:
- The $150,000 Instant Asset Write-off for Business Owners and Sole Traders
- How the Write-off Works In Commercial Vehicle Purchase
- Car and Business Owner/Sole Trader Eligibility Requirements
What is the Instant Asset Write-off?
It is a one-off tax deduction on commercial vehicle and equipment purchases. It allows you to claim a full deduction for the business portion of depreciating assets, such as vehicles, tools and office equipment. These assets must cost less than the threshold amount (up to $150,000) and must be purchased and used in the year that the write-off is claimed.
Introduced by the Federal Government in 2015, the instant asset write-off scheme helps small businesses claim the depreciation amount of their asset purchases once rather than gradually over a multi-year period.
The $150,000 Threshold
The Federal Government has increased the asset limit from $30,000 to $150,000 effective on March 12, 2020, as part of its coronavirus economic stimulus measures.
Under the scheme, the eligibility requirements were also revised to serve more businesses. From an aggregated turnover of less than $50 million, businesses with an aggregated turnover of less than $500 million are now eligible for the program.
However, the $150,000 instant asset write-off threshold is placed until December 31, 2020 only. After this, the threshold amount that businesses can claim will revert back to $1,000.
If you want to take advantage of the higher threshold, now is the best time to buy a new vehicle or equipment!
How Does it Work for Car Purchases?
Commercial vehicles are one of the depreciating assets that you can write on your instant asset write-off claim with a threshold of $150,000. It is important to note, however, that this threshold is subject to a “car cost limit”, which is the limit on what you can actually claim back.
For cars that are designed to carry a load less than one tonne and fewer than nine passengers, the total amount that you’re allowed to claim is $57,581. Anything beyond that point "cannot be claimed under any other depreciation rules”, according to the Australian Taxation Office.
However, for cars that cost less than $150,000 and can carry more than one tonne or more than nine passengers, you can claim the full purchase price back.
How does that work again?
If you buy a commercial vehicle for $140,000 and it is used for business purposes about 90 per cent of the time, you can claim a total deduction of 90 per cent of $57,581. That is $51,822.
If you use that same vehicle exclusively for business purposes, however, you're entitled to the full claimable amount of $$57,581.
If you’re buying a vehicle that‘s exactly $150,000 or more, you’re ineligible for the instant asset write-off scheme.
Car Eligibility Requirements
To qualify for the instant asset write-off, your vehicle:
- Can be any car or motor vehicle, new or used, from tradie utes or farm trucks to vans and SUVs
“Generally speaking cars that are used for business purposes are eligible for the instant asset write-off. But it’s not all plain sailing as there are limits so make sure to check the simplified depreciation rules including the car limit,” advises Paul Drum, Head of External Affairs at CPA Australia.
- Must cost less than $150,000 threshold, which includes the costs for car accessories, stamp duty, luxury car tax, on-roads and delivery (insurance and registration, not included)
Considering that the toughest workhorses are somewhat expensive, that’s tricky, right? You might want to consider buying a practical Ssangyong Musso or Isuzu D-Max now.
- Must be ready for use between March 12, 2020, and December 31, 2020
If you purchased a car back in January and you’ve been using it for the last few months, you’re still qualified. You're also eligible if you’ve purchased the car before December 31 and already using it before December 31.
How Much Can You Claim Back?
If you’ve purchased a vehicle for $140,000, it doesn’t necessarily mean that you get the $140,000 back in your instant asset write-off. The amount you are getting will be based on your marginal tax rate.
You can only get the full amount back if you are:
- At the top of the tax bracket of 32.5%
- At the top 2% of the Medicare levy
- Using the car for 100 per cent business use (excluding GST) between 12 March 2020 and 31 December 2020
So, if your business profit is $90,00 and you’re getting a full instant asset deduction of $30,000 from your $30,000-worth commercial vehicle purchase, your taxable income will be reduced to $60,000. This will save you 34.5 per cent in tax on the $30,000 spend, which equals to $10,350. Amazing!
What If You Purchased Your Car Through a Loan?
It does not matter how you’ve financed the car purchase, be it through your own money, investors, or a chattel mortgage. As long as the car is used for commercial purposes and meets the requirements outlined above, you are eligible for the instant asset write-off.