Motorama Brisbane Small Business Solutions Fringe Benefit Tax Credit GST FBT Leasing Novated Salary Sacrifice New Used Demonstrator Car Van Ute Sales Specials

Accelerated depreciation for small businesses explained

Buying a car for your business? The government might be able to help you out at tax time.

In addition in a reduction of the company tax rate, the threshold for immediately deductible items has been raised from $1,000 to $20,000; meaning that any equipment purchased for your business (including cars) will be written off on your tax until June 30, 2018.

Effective until June 30, 2018, assets up to $20,000 ex GST (excluding stock, horticultural plants and software developed in-house) are eligible for a 100% tax write-off for any business with a turnover less than $2 million.

Motorama Brisbane Small Business Solutions Fringe Benefit Tax Credit GST FBT Leasing Novated Salary Sacrifice New Used Demonstrator Car Van Ute Sales Specials

What is it?

It’s obviously more complicated than the government just handing out $20,000 tax returns for free.

This form of accelerated depreciation allows you to reduce your taxable income by $20,000 – resulting in a cash flow benefit relative to the rate you’re taxed at.

Global accounting firm BDO uses the example of a small business, registered for GST, purchasing a vehicle with a GST-inclusive value of $21,999 ($19,999 ex GST). If the vehicle is delivered before 30 June 2015, and used 100% for your business, you will be entitled to an immediate deduction of $19,999 as well as being able to claim the $2,000 as a GST input credit.

This would effectively translate into a cash flow benefit of $6,000 at the current company tax rate of 30%, with a $5,700 saving over the 2015/16 and 2016/17 financial years thanks to the government reducing the company tax rate to 28.5%.

In real terms, this means that small businesses will have a less complicated tax return to complete, as their assets will either qualify for the immediate write-off or, if the asset is valued over $20,000, with depreciation based on useful life. For example, the ATO assesses the useful life of a business vehicle at a maximum of 8 years.

In order to make the most of the deductions, businesses would have to claim before June 30 of this year in order to maximise cash flow benefits with any assets claimed.

What can I claim?

The allowance permits for any asset you need to run your business including cars, vans and operating equipment (such as new furniture for a café or extra water tanks for a nursery).

In terms of business vehicles, you can claim the tax deduction on any new or used cars that are invoiced at up to $20,000 ex GST. This could be a used van to make your café mobile during lunchtimes, or upgrading to a new cab chassis ute to fit an existing tray setup.

Assets over $20,000 can be fully written off, but not immediately. You can group your assets that exceed the threshold in order to depreciate them at the same rate (15% in the first year, 30% for every year after that).

It is also worth noting that if an existing asset is in a depreciation pool and will be valued at less than $20,000 by June 30, 2018; it can be written off under this new method of accelerated depreciation.

Buying a car

If you do need a business vehicle, Motorama has dedicated, expert teams across our dealerships; who can help you with solutions to get you on the road with expertise in service, sales, finance and insurance. We also have a fantastic range of new, used and demonstrator cars under $20,000 across our group of dealerships.  

View all cars under the threshold

If you’re considering purchasing a business vehicle under these new accelerated depreciation method; the below table from BDO gives a handy example of net costs and savings – for the full brochure assessing the changes to claiming deductions on asset, click here.

Motorama Brisbane Small Business Solutions Fringe Benefit Tax Credit GST FBT Leasing Novated Salary Sacrifice New Used Demonstrator Car Van Ute Sales Specials 

(BDO Comment: If you have any queries in regards to the depreciation of motor vehicles for small businesses, please contact BDO who will have one of their Automotive specialists assist you. Please note this information is general in nature and should not be used as a substitute for your own professional advice. Any tax benefit that may be available will be subject to your own circumstances.)