Instant Asset Write-Off Increased

Posted by Motorama in Buyer Advice


Buying a car for your business this tax year? The instant asset write-off threshold has been increased to $150,000 and expanded to include businesses with an annual turnover of less than $500 million.

With the threshold for immediately deductible items (including cars) raised from from $30,000 to $150,000 for business with annual turnover of less than $500 million (up from $50 million) any equipment purchased for your business from 12 March 2020 will be 100% written off your tax until 30 June 2020.

What is the Instant Asset Write-Off?

It’s obviously more complicated than the government just handing out $150,000 tax returns for free.

This form of accelerated depreciation allows you to reduce your taxable income by $150,000 – resulting in a cash flow benefit relative to the rate you’re taxed at.

In real terms, this means that small businesses will have a less complicated tax return to complete, as their assets will either qualify for the immediate write-off or, if the asset is valued over $150,000, with depreciation based on useful life. For example, the ATO assesses the useful life of a business vehicle at a maximum of 8 years.

In order to make the most of the deductions, businesses would have to claim before June 30 of this year in order to maximise cash flow benefits with any assets claimed.


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What can I claim?

The allowance permits for any asset you need to run your business including cars, vans and operating equipment (such as new furniture for a café or extra water tanks for a nursery). In terms of business vehicles (designed to carry a load of less than one tonne and fewer than nine passengers), you may be able to claim an immediate deduction where the cost is less than $57,581 excluding GST. The significance of $57,581 is that this represents the car cost depreciation limit, so regardless that the concession applies to assets up to $150,000 excluding GST, the concession for cars defaults to the $57,581.

So if a business owner purchases a passenger car for $140,000, and the car is used for 90 per cent business and 10 per cent personal use, then the total deduction would be 90 per cent of $57,581 – or $51,822.For other motor vehicles, e.g. commercial vehicles designed not principally to carry passengers, may be able to claim an immediate deduction where the cost is up to $150,000 excluding GST. This could be a used van to make your café mobile during lunchtimes, or upgrading to a new cab chassis ute to fit an existing tray setup.

Assets over $150,000 can be fully written off, but not immediately. You can group your assets that exceed the threshold in order to depreciate them at the same rate (15% in the first year, 30% for every year after that). It is also worth noting that if an existing asset is in a depreciation pool and will be valued at less than $150,000 by June 30, 2020 it can be written off under this new method of accelerated depreciation.

Misconception

A common misconception is that a claim back means you get the equivalent back in tax. That's not the case however, as the actual operation is based on marginal tax rate of a taxpayer.

For example, sole trader has business profit of $90,000. Therefore they are at the top of the tax bracket of 32.5 per cent plus the Medicare levy of 2 per cent. Now, if this sole trader buys a ute for 100 per cent business use for $30,000 (excluding GST) between 12 March 2020 and 30 June 2020, they have satisfied the instant asset write-off rules and they would get an instant asset deduction of $30,000. This would reduce their taxable income to $60,000 and they would save 34.5 per cent in tax on the $30,000 spend, equalling $10,350. This saving would be delivered via the taxpayers tax return when they lodge the 2020 income tax return.

Stamp duty, luxury car tax, any accessories, on-road costs and delivery costs are included in the threshold price, but not insurance and registration.

Buying a car

If you do need a business vehicle, Motorama has dedicated, expert teams across our dealerships who can help you with solutions to get you on the road with expertise in service, sales, finance and insurance. We also have a fantastic range of new, used and demonstrator cars under $150,000 across our group of dealerships. They will also be able to give you more specific information for your business needs.

Motorama have been selling cars in Brisbane since 1960. We retail new cars brands including Toyota, Holden, Kia, Mitsubishi, Ford, Jeep and Nissan, at our dealerships in Moorooka, Springwood & Browns Plains.

Explore Our Brands

Motorama have one of the largest selections of quality pre-owned cars for sale that qualify for the tax break. If you are in the market for a business vehicle, we will have the right car for you at one of our convenient locations.

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Financing your car at Motorama is quick and easy. Our fully trained and accredited Business Managers are specialists in automotive finance and insurance. They are more than happy to answer any questions you may have during the car buying or financing process.

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At Motorama, customer convenience is our major focus and we are proud to offer our Home Drive Service. Home Drive provides a link between reserving your car online and visiting Motorama - allowing you to purchase completely from the comfort of your home or work place.

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