Instant asset tax write-off against your new car
Claim the cost of a new car against your tax and benefit immediately?
On March 11, 2020: In response to the coronavirus (COVID-19) outbreak, the Morrison Government announced a $17.6 billion 'economic plan' to steer the national economy away from a recession. As part of the plan, the government is expanding the scope of the instant tax write-off from $30,000 to $150,000 for each asset.
Businesses with an annual revenue of $500 million are eligible. The scheme takes place with immediate effect and closes on June 30, 2020. Importantly, the depreciation a business owner can claim is still limited to $57,581 for a car, defined as a vehicle "designed to carry a load of less than one tonne and fewer than nine passengers". The Morrison government has announced in its 2019 budget that the instant tax write-off for small business is now applied to assets costing up to $30,000.
It's an opportunity for business owners to select from a more diverse range of vehicles and still enjoy the tax write-off benefit of years gone by, when the purchase price of the asset was limited to $20,000.The tax write-off is available to owners of businesses generating less than $10 million turnover a year. It's probably easiest to explain how this works by example. Let's say you are a self-employed electrician. Your small business operates out of a factory unit and the revenue the business earns has held steady around the $300,000 mark for each of the past three years.
You've been using the family car to attend jobs, but you've just picked up a big corporate client – a property manager of strata title units right across the city and suburbs. To look after this client properly, you need a reliable vehicle that can pack all your tools and material.
The added revenue may mean a much larger tax bill at the end of the financial year, (also known as EOFY) – a tax bill which could be reduced by buying the new van or pick-up you need. But rather than claim a yearly tax deduction for depreciation on the vehicle over its useful life, you want to offset the depreciation in full as a deduction in the next tax return you lodge.
The instant asset tax write-off allows you to claim this tax deduction all at once. You can deduct full depreciation of the vehicle from your tax bill during the same financial year, as long as the vehicle is priced below $30,000 and it is used or ready for use in the same financial year, subject to eligibility criteria and GST status.
At the end of the financial year, you sit down with your tax agent or accountant and provide all your income and each deduction in a list to be submitted with your tax return, and confirm whether you're eligible for the instant tax write-off. If you are eligible for the instant tax write off, lodge a tax return with the ATO and include the cost of the motor vehicle as a deduction for that financial year. Where you are not eligible for the instant tax write-off, you may instead be entitled to claim depreciation over the useful life of the motor vehicle. Note that if you claim the instant write-off, you cannot also claim depreciation of the car or light commercial vehicle.
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