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Unlock Tax Benefits: Instant Asset Write-Off Car Guide for Business Owners

 

Are you a business owner looking to purchase a vehicle for your operations? Have you heard of the instant asset write-off scheme but are unsure how it can benefit you? Worry not, as this comprehensive guide will walk you through the ins and outs of the instant asset write-off for vehicles, helping you make the most of this advantageous tax incentive, specifically the instant asset write off car.

Not only will you learn about the eligibility criteria and types of vehicles that qualify for this scheme, but we will also explore financing options, claiming write-offs for mixed-use vehicles, and the importance of seeking professional advice. Let this be your roadmap to unlock the tax benefits of the instant asset write off car for your business!

Outline

  1. Key Takeaways

  2. Understanding Instant Asset Write-Off

  3. Types of Vehicles Eligible for Instant Asset Write-Off

  4. Claiming Instant Asset Write-Off for Mixed-Use Vehicles

  5. Multiple Vehicle Claims and Accessories

  6. Financing Your Vehicle Purchase

  7. Consult Your Accountant or Financial Advisor

  8. Summary

  9. Frequently Asked Questions

Key Takeaways 

  • Understand the fundamentals, eligibility criteria and thresholds of Instant Asset Write-Off to maximise tax savings.

  • Claim an unlimited number of eligible assets for business purposes with no upper limit on cost.

  • Consult a professional advisor to ensure eligibility and get advice on financing options available.

Understanding Instant Asset Write-Off

The instant asset write-off scheme is a game-changer for businesses that rely on acquiring assets to remain operational. It allows businesses to purchase capital assets, such as vehicles, and receive an immediate deduction for the same amount. This means businesses can lower their taxable income, resulting in a lower company tax rate.

However, understanding the basics of this scheme, the types of vehicles eligible, and the tax savings it provides is fundamental. We begin by analysing the fundamentals of the instant asset write-off, including the eligibility criteria and thresholds.

The Basics

To claim the instant asset write-off, businesses must meet certain criteria, including:

  • Having an aggregated turnover of less than a specific threshold (e.g., $10 million in Australia) and assessable income within the allowable range

  • Purchasing eligible assets such as cars, vans, and operating equipment

  • The asset must be purchased and ready for use within the financial year

  • The threshold for annual turnover has been raised to $5 billion

  • This is applicable on eligible new asset purchases done between 6 October 2020 till 30 June 2022.

Calculating the portion of the asset’s cost that’s used for business purposes is pivotal, as only this portion is eligible for the instant asset write-off. For instance, if a vehicle is utilised 70% for business and 30% for private use, only 70% of its cost can be written off. Now, we turn our attention to the tax savings this scheme can offer.

Tax Savings

The instant asset write-off can result in significant tax savings for businesses by reducing their taxable income. For example, a sole trader with a business profit of $90,000 who purchases a ute for 100% business use for $30,000 (excluding GST) would be eligible for an instant asset deduction of $30,000. This results in a taxable income of $60,000 and tax savings of 34.5% on the $30,000 expenditure, amounting to $10,350, which is based on the full company tax rate.

The maximum amount eligible for the instant asset write-off is $65,000, which can significantly impact how much tax a business has to pay. Both new and pre-owned cars, including those with fewer than nine passengers, are eligible for the instant asset write-off. Having grasped the essentials, we move on to discuss the types of vehicles that qualify for this scheme.

Types of Vehicles Eligible for Instant Asset Write-Off

The instant asset write-off scheme applies to a wide range of vehicles, including:

  • Cars

  • Utes

  • Vans

  • Trucks

  • Motorcycles

These vehicles must be used for business purposes. However, there are certain limits and restrictions depending on the type of vehicle. Passenger cars and commercial vehicles have different eligibility criteria, with passenger cars having an upper limit for instant asset write-off, while commercial vehicles do not.

We examine these vehicle categories in more detail next.

Passenger Cars

Passenger cars are limited in terms of their weight and number of passengers. This applies to vehicles designed to carry a load of less than 1000kg and no more than eight passengers. For cars that can carry a tonne or less or seat fewer than nine people, the dollar limit is $64,741. This means that if you’re planning to purchase a passenger car, you’ll need to ensure that the cost is below this limit to qualify for the instant asset write-off.

However, awareness of certain limitations and restrictions when claiming instant asset write-off for passenger cars is necessary. For instance, if you acquire a 2021 Ford Ranger Wildtrak X with a payload of 929kg, the instant asset write-off cap is $64,741, as it is subject to the car limit for passenger vehicles.

Commercial Vehicles

On the other hand, commercial vehicles, such as trucks and vans, have different eligibility criteria for instant asset write-off. Unlike passenger cars, commercial vehicles don’t have an upper limit for instant asset write-off claims. This means that you can claim the entire cost of the commercial vehicle, as long as it is used for business purposes and meets the eligibility criteria.

Commercial vehicles designed primarily for freight transportation are eligible for the instant asset write-off. For example, the full cost of a 2021 Toyota Landcruiser GXL with a payload of 1100kg is eligible for the instant asset write-off cap deduction. This makes commercial vehicles an attractive option for business owners looking to maximise their instant asset write-off benefits.

Claiming Instant Asset Write-Off for Mixed-Use Vehicles

What if you’re using a vehicle for both business and personal purposes? Can you still claim the instant asset write-off? The answer is yes, but you’ll need to take some extra steps to ensure you’re claiming the correct amount. Only the portion of the cost that corresponds to the percentage of business use of the asset can be claimed.

To accurately claim the instant asset write-off for mixed-use vehicles, you need to calculate the business use of the vehicle and maintain proper records. Let’s explore these steps in more detail.

Calculating Business Use

For claiming the instant asset write-off for mixed-use vehicles, calculating the business portion of a vehicle’s cost is indispensable. Various methods can be employed to determine the business use percentage of a vehicle, such as the logbook method or the actual costs method. The logbook method involves maintaining a logbook to record the business and personal use of the vehicle, and then calculating the business use percentage based on the information logged in the logbook.

Whichever method you choose, accurate calculation of the business use percentage of the vehicle to claim the correct amount for the instant asset write-off is necessary. For example, if a vehicle is used 60% for business purposes, only 60% of its cost can be claimed under the instant asset write-off scheme.

Record Keeping

When claiming the instant asset write-off for mixed-use vehicles, maintaining accurate records is of the essence. You’ll need to keep records such as purchase receipts, invoices, and documents demonstrating the asset’s business use. These records must be retained for a period of 5 years from the date of lodging the tax return.

Proper record keeping not only helps you claim the instant asset write-off accurately but also protects you in the event of an audit or investigation by tax authorities. Inaccurate record keeping can result in penalties, fines, and potential legal consequences if the inaccurate claim is found to be intentional or fraudulent.

Multiple Vehicle Claims and Accessories

If your business requires more than one vehicle or you’re looking to purchase car accessories, you might be wondering how this impacts your instant asset write-off eligibility. The good news is that the instant asset write-off rules allow you to claim multiple vehicles and car accessories, as long as each asset meets the eligibility criteria.

We move next to a deeper analysis of the rules for claiming instant asset write-off for multiple vehicles and car accessories.

Unlimited Asset Claims

Under the instant asset write-off scheme, small businesses can claim an unlimited number of new eligible assets regardless of their dollar value. This means that if your business requires multiple vehicles, you can claim the instant asset write-off for each vehicle, as long as their combined cost is below the threshold amount and they meet the eligibility criteria.

Keep in mind that both new and second-hand assets are eligible for the instant asset write-off, provided they are used for business purposes. This flexibility allows businesses to invest in the vehicles they need while maximising their tax benefits.

Car Accessories

Car accessories can also be included in the overall asset value for instant asset write-off purposes. Accessories installed by the dealer at the time of purchase are eligible. However, the car limits may still be applicable, and the vehicle must be a business asset.

Examples of eligible car accessories include roof racks, bull bars, and other functional additions to the vehicle. This allows businesses to claim the instant asset write-off not only for the vehicle itself but also for any necessary accessories that enhance the vehicle’s functionality.

Financing Your Vehicle Purchase

When it comes to purchasing a vehicle for your business, you may need to consider financing options to make the investment. Financing options, such as car loans and leasing, can help businesses acquire the vehicles they need without putting a strain on their cash flow. But how do these financing arrangements impact your instant asset write-off eligibility?

Let’s examine the relationship between car loans, leasing, and instant asset write-off claims.

Car Loans and Instant Asset Write-Off

Car loans and financing arrangements generally do not affect your eligibility for instant asset write-off. This means that even if you’re financing a vehicle through a loan, you can still claim the instant asset write-off on the full cost of the asset, up to the limit set by the government.

The interest in car loans has no bearing on instant asset write-off claims, and business owners can still claim the instant asset write-off regardless of any car loan interest. This flexibility allows businesses to finance their vehicle purchases without sacrificing their instant asset write-off benefits.

Benefits of Car Brokers

Car brokers can be a valuable resource for business owners looking to purchase vehicles. They can:

  • Help secure better deals and streamline the purchasing process

  • Assist with locating a vehicle that meets the requirements for the instant asset write-off scheme

  • Negotiate the best price

  • Provide advice on financing options

By leveraging their collective buying power and expertise, car brokers can provide the following benefits for vehicle purchases:

  • More advantageous deals, potentially resulting in thousands of dollars in savings

  • Increased access to inventory

  • More favorable negotiation opportunities

With the help of a car broker, you can acquire the vehicles your small business needs while maximising your instant asset write-off benefits.

Consult Your Accountant or Financial Advisor

While this guide provides an overview of the instant asset write-off scheme for vehicles, consulting with an accountant or financial advisor for tailored advice on your specific situation is recommended. They can help you determine if you qualify for the write-off, provide guidance on maximising tax benefits, and ensure compliance with tax regulations.

A financial advisor can offer counsel on:

  • Eligibility for the instant asset write-off

  • Asset selection and timing

  • Financial planning

  • Tax planning

By seeking professional advice, you can make the most of the instant asset write-off scheme and maximise your tax savings.

Here are some reasons you should be outsourcing your tax and accounting

Summary

In summary, the instant asset write-off scheme is a valuable tax incentive for businesses looking to purchase vehicles for their operations. By understanding the eligibility criteria, types of vehicles, and tax-saving potential of the scheme, you can make informed decisions that maximise your tax benefits.

Don’t miss out on the opportunity to unlock the tax benefits of the instant asset write-off for your business. Consult with an accountant or financial advisor, explore your financing options, and invest in the vehicles your business needs to thrive.

We’re hear to help

If you’re unsure about any aspect of your taxes or need assistance with financial tax planning, consulting tax advisors at Sleek will save you time, money, and potential headaches. At Sleek, we provide accounting services to aid you with an efficient and seamless tax process.

Frequently Asked Questions

Can I claim instant asset write-off for financed car?

Yes, you can claim instant asset write-off for financed cars if you opt for a secured loan. This finance option is popular with businesses as it allows them to spread the costs of the vehicle, minus its depreciation, over a fixed term and reduce cash outlay.

How much does a small business need to earn to pay tax?

As a sole trader, your business needs to pay tax on any profits it earns above the tax-free threshold of $18,200 in the 2019–20 financial year. There is no tax-free threshold for companies and the full company tax rate is 30%. Therefore, a small business needs to earn at least this amount to cover its tax obligations.

What types of vehicles are eligible for the instant asset write-off?

Businesses of all sizes may be eligible for the instant asset write-off, with vehicles such as cars, utes, vans, trucks, and motorcycles potentially qualifying.

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Disclaimer: The information on this website is intended for general informational purposes only and may not be specifically relevant to everyone’s personal situation. It should not be considered financial advice or a substitute for professional tax or accounting advice. Each individual’s circumstances are unique, and laws can vary. For tailored advice, please consult a qualified professional. Contact Sleek for further information on how we can help you.

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