Instant Write-off for your business car finance
The Instant write-off was introduced in 2015 to help small businesses claim depreciation amount on any equipment purchased for business purposes. Such equipment also includes business cars. The eligibility criteria for this scheme was increased by the government as an economic stimulus for small businesses to mitigate the harsh conditions caused by the COVID 19 pandemic. The asset limit was increased to $150,000 from $30,000, and businesses with an annual turnover of less than $500 million are now eligible instead of those with less than $50 million before. This new eligibility policy has been extended to December 31, 2020, so that businesses can have more time to benefit from the scheme.
With this scheme, you can instantly claim a tax deduction on your business car purchase instead of Waiting till the end of the financial year. Have you been thinking about improving your car fleet but you don’t have the necessary finance for such purchase, and you are worried about the tax on such purchase. You can cease worrying about that for now because you can instantly write off tax on multiple assets each valued under $150,000. Where you buy a vehicle that costs more than $150,000, you cannot use instant write off.
While all vehicles that are used for business purposes qualify for instant write off, it is much more complicated than that in reality. For a car to be eligible, it must be bought and ready to use within the period of the scheme. Thus a vehicle purchased in May will effectively qualify for instant write off. It is crucial to understand how the instant write off scheme works for you to enjoy its benefits fully. There is an erroneous idea that when you buy a vehicle that cost less than $150,000 overall, you will get the claim back in tax. However, this is not how it operates. The scheme simply means the amount of taxable income you will paying will reduce in proportion to the amount spent on buying the vehicle. Thus, if a business with a taxable income of $100,000 should buy a commercial van that costs $40,000. Such a car immediately qualifies for instant write off, and the business will get an instant deduction of $40,000. Thus, the taxable income will reduce to $60,000.
Not all vehicles are eligible for the $150,000 instant write-off. For instance, a car with the capacity to carry less than nine passengers and a load less than one tonne can only claim $57,581 in instant write-off unless it has been designed for use by people with disability. The write off applies to heavy vehicles such as trucks, machinery, semi-trucks, and the likes as long as they cost below $150,000. The costs that are added when calculating the overall cost of the vehicle include the initial purchase price, stamp duty, optional features, luxury tax, delivery costs, and on-road costs. Insurance and registration are not included. The percentage of the overall cost that would be written off will depend on the percentage of use for business purposes. So if it is used for 80% business purposes, only 80% of the overall cost can be written off as well.