We’ve all seen the TV ads promoting the latest model of work ute while mentioning the current instant asset write-off to sweeten the deal.
Before jumping online to find their businesses dream car, owners must understand how motor vehicle depreciation works. The instant asset write-off rules can apply differently to some vehicles, resulting in the complete value being ineligible for the write-off.
How motor vehicle depreciation works
Depreciation is the natural wear and tear of property and assets over time. While almost everything depreciates, only owners of income-producing properties and businesses can claim depreciation as a tax deduction.
These deductions can be claimed as either capital works or plant and equipment. A motor vehicle is classed as a plant and equipment asset and depreciates based on its effective life.
It may also be depreciated in a general business pool or as an instant write-off, depending on the business’s eligibility.
Splitting the difference between business and private use
It’s not uncommon for business owners, and sometimes their employees, to use work vehicles for their own personal use.
When this happens, the depreciable amount must be calculated only on the work-related portion.
|In practice: splitting the difference
Ed is a business owner and has a dedicated work vehicle that is primarily used for travel when meeting with clients. The purchase price of the vehicle was $40,000.He estimates that he uses the car 70 per cent of the time for business purposes. This means the depreciable value of the car reduces by 30 per cent to $28,000 and any deductions must be based off this value.
Motor vehicle depreciation and the instant asset write-off
The current instant asset write-off threshold currently stands at a staggering $150,000. However, there are rules around how the write-off applies to vehicles.
A car limit of $59,136 is currently in place for standard passenger vehicles designed to carry less than one tonne and fewer than nine passengers at a time. If the vehicle is above the limit, only the maximum amount can be written off.
This limit only applies to passenger vehicles, therefore others such as tractors and industrial machinery aren’t affected and are eligible for the total threshold of $150,000.
|In practice: car limit and the instant asset write-off
Mel purchases a new motor vehicle for $60,000. It is used 100 per cent for business purposes. She purchases and receives the vehicle on 10 August 2020.The vehicle has a payload capacity of 1,100kg and only carries two passengers.
While the vehicle carries less than the nine passenger limit, Mel can still claim the full cost under the instant asset write-off. This is because the vehicle meets the threshold and qualifying dates, is used solely for her business and has a payload capacity of more than one tonne.
Depreciate motor vehicles with the specialist
BMT Tax Depreciation has helped business owners claim motor vehicle depreciation on all types of vehicles, from cars, buses and trucks, to marine vessels and golf buggies. BMT’s comprehensive tax depreciation schedules take into account all current tax rulings and government incentives to ensure businesses claim more each tax time.
To find out how much motor vehicle depreciation you can claim, contact BMT on 1300 728 726 or Request a Quote.