$150K Instant Asset Write Off
7 Things You Must Know when
Buying a New Business Vehicle
WORDS JAMES WHITBOURN
UNDER the $150K Instant Asset Write Off, eligible businesses will be able to claim a tax deduction up until June 30, 2021, on business vehicles purchased and delivered before December 31, 2020.
The increase to $150,000 from the previous $30,000 threshold is of immense benefit, because it opens up a substantially wider range of business vehicle alternatives.
Vehicles up to $150K (excluding GST) fall within the threshold and eligible businesses will be able to make a claim up to the $57,581 Depreciation Cost Limit for each vehicle purchased.
This will bring a potential tax saving for the financial year of the purchase of $15,835 at the company tax rate of 27.5 percent (along with a GST credit of up to $5234.)
The ability to boost your company’s medium-term cash flow by up to $20,000 is a potentially compelling reason to take advantage of the $150K IAWO.
Read on to find out whether your business is eligible as well as how the $150K Instant Asset Write Off could benefit your business.
1. Is your business eligible for the $150K Instant Asset Write Off?
The $150K instant asset write off is available to the majority of businesses.
It extends to businesses with an aggregated annual turnover of less than $500 million. (Previously it was ‘less than $50 million’.)
The official government release is here.
2. Can my business claim the entire $150K purchase price under the $150K IAWO?
A $57,581 Depreciation Cost Limit remains in place for motor vehicles – this is the maximum deduction that is possible for business vehicles.
This corresponds to a maximum tax saving of up to $15,835 at the company tax rate of 27.5 percent.
As an ‘instant’ asset write off (‘write off’ basically means ‘deduction’), eligible businesses can boost their short term cash flow by claiming all of the depreciation in their next tax return, rather than claiming it over a series of subsequent financial periods.
Businesses can also claim a credit for some of the GST paid on new business vehicles of up to $5234 (1/11th of the Depreciation Cost Limit).
Most importantly, just as with any major financial decision, it is wise to seek advice from your accountant before you commit to making a purchase.
A range of factors specific to your situation will all have an impact on whether the $150K IAWO is beneficial for your business.
These include the percentage of business use versus personal use, and whether the business will generate a profit or a loss for the financial year the purchase is made within.
3. The $150K Instant Asset Write Off is based on the vehicle price, not the changeover figure if you’re trading-in
The $150K plus GST threshold applies to the total price of the vehicle being purchased and not the changeover figure, which is the difference between the price of the new car and the value of your trade-in.
4. The $150K Instant Asset Write Off can be claimed for more than one vehicle
Under the $150K Instant Asset Write Off, businesses can claim up to the $57,581 DCL for each vehicle with no limit on the number of vehicles purchased.
5. Businesses are able to buy a car for more than $160K (Because the $150K threshold is excluding GST)
The Instant Asset Write Off threshold is $150,000 excluding GST. So, as long as your business is registered for GST, vehicles with a drive-away price of $160,000 or more are eligible (because this drive-away price includes 10 percent GST on the cost of the vehicle and accessories – along with Luxury Car Tax, and registration and statutory charges, which don’t attract GST.)
6. Businesses can buy a used car under the $150K Instant Asset Write Off
The $150K Instant Asset Write Off threshold applies to ‘new or second‑hand assets first used or installed ready for use in this timeframe.’
For cars, this means they had to be delivered by December 31, 2020.
7. Businesses can finance a new vehicle and claim the $150K Instant Asset Write Off
Purchases made using commercial asset finance, such as a chattel mortgage (secured loan) or commercial hire purchase (CHP) can be claimed under the $150K Instant Asset Write Off.
However, the cost of a vehicle acquired under a finance lease cannot be claimed, because under a lease the business does not own the vehicle.