Planning to buy a car for your business? Now is a good time to do it. The Australian Government has recently made changes to the instant asset tax write-off rules, which are set to last until 31 December 2020. Here is everything you need to know about the recent updates.
What Is the Instant Asset Write Off?
Launched in 2015, this scheme allows small businesses to claim the depreciation amount of business-owned assets like cars in advance. Any vehicles that qualify under the scheme can be written off the businesses’ taxable income. This means that your business will have lower taxes to pay and better cash flow to work with.
How Has It Changed?
When the instant asset write-off was introduced, the value limit or threshold of the vehicle (which can carry less than a tonne, and eight passengers or fewer) that businesses can claim off their tax returns was $30,000. This includes the cost of accessories, luxury car tax, delivery costs, on-road costs, and stamp duty.
Eligible businesses are those with an aggregated income of less than $50 million annually. Also, the scheme was only supposed to last until 30 June 2020.
In response to the economic downturn Australia is experiencing due to the COVID-19 pandemic, the government increased the instant asset write-off limit to $150,000. Eligible businesses now include those with an aggregated income of less than $500 million and the deadline to submit claims is extended until the end of 2020.
What Can I Claim?
To set things straight, you can’t claim for the entire value of the vehicle. If you purchase a car that costs $150,000 (GST not included) or less, the maximum deduction on your taxable income is $57,581 (the car cost depreciation limit). That is, if you are using the vehicle for 100 percent business. If the car is only 80 percent for business use, then the maximum concession is only $46,064.80 (80% of $57,581).
Meanwhile, if the car is not primarily used for carrying passengers and the cost is less than $57,581 (excluding GST), you can immediately claim a deduction for the full vehicle cost. All vehicles priced over $150,000, whether for carrying passengers or not, can have the maximum deduction written off fully from your taxable income, but not immediately.
Also, you can claim the instant asset write-off for vehicles you purchased between 12 March 2020 and 31 December 2020, but the vehicle needs to be in use during that period.
So, Do I Get a Car for Free?
It’s a common misconception that with the instant write-off scheme, you’ll essentially be getting a full ‘refund’ on a vehicle purchased for the business. That is incorrect. Even if you are eligible for the full instant asset write-off, that doesn’t mean that you’ll get the full price of the vehicle back through your tax return. Remember that the amount will be deducted on your taxable income, not on your total payable tax.
For example, you are a sole trader or you own a small business that has an annual turnover of $120,000. According to the Australian Taxation Office (ATO), you belong to the “base rate entities” and have a tax rate of 27.5 percent. If you buy a $40,000-car that’s eligible for a full write-off, your taxable income will decrease to $80,000. That means you’ll save $11,000 ($40,000 X 27.5%) on tax, which will be given back to you once you submit your tax return.
How Do I Claim?
There is no specific application for the Instant Asset Write-Off Scheme. You can claim for the write-off via ATO’s tax return self-assessment system until 31 December 2020, which is an extension for the 2019-2020 fiscal year that ended on 30 June 2020.
How Do I Know How Much the Car Is Used for “Business Use”?
If the car is used to carry load rather than passengers, then it’s considered 100% business use. But if you bought a passenger car, you must keep a logbook and record the hours the vehicle is used for business purposes and personal purposes. You must keep this logbook over a 12-week period.
After this period, divide the total number of hours for business use by the total number of hours the car was used (business purpose plus personal purpose) and you’ll determine how much the car is used for business purposes.
Commercial Car Finance
With these changes to the instant asset write-off rules in 2020, you can benefit significantly from this scheme if purchasing a car for business use before year-end, whether you’re a sole trader or a small business owner. Not to mention that you’ll be helping the Australian economy recover and get back to its feet. To help with your purchase, you can get commercial vehicle finance from Aussie Car Loans as soon as applications have resumed
We offer a wide array of business car loan solutions for companies of all sizes. Whether you’re purchasing a fleet or a single vehicle, our finance experts can help you find the best loan option for your business needs.
Call Aussie Car Loans at 1300 769 999 or enquire online and get a pre-approved car loan for your business today.