How the instant asset write-off applies to vehicles

Got your eye on a shiny new vehicle for your business thanks to the $150,000 instant asset write-off? We’ve got the answers to the FAQs many business owners are asking.

Need a new van for that delivery service your business has started? Or perhaps your trusty old ute is now more ‘old’ than ‘trusty’.

To help businesses with cash flow amidst the coronavirus pandemic, the federal government has increased the instant asset write-off threshold from $30,000 to a whopping $150,000 until December 31.

Under the scheme, you can immediately write off the cost of assets – such as new and second-hand vehicles – allowing you to claim the deduction in one hit, rather than over the lifetime of the assets.

But (and there’s always a but!), there are several important exclusions and limits when it comes to vehicles under the scheme, which the ATO has recently clarified. Here’s a summary of their new guidance.

Does the instant asset write-off apply equally to all vehicles?

Unfortunately not. Vehicles with a total cost of less than $150,000 are eligible.

However, if you purchase a car – one that’s designed to carry a load less than one tonne and fewer than nine passengers – then you can only claim a limit of $57,581 (unless it’s been fitted out for use by people with disability).

That said, the threshold applies on a per asset basis, so eligible businesses can immediately write off multiple assets (see case studies below).

What about bigger vehicles?

Good news!

The $150,000 threshold applies to heavy-duty vehicles such as trucks, tractors, machinery and one-tonne utes.

But remember: the total cost of the vehicle must be less than $150,000 (including all relevant taxes) in order to be eligible.

Can you claim the full cost of the car if you use it for both business and private use?

No.

If you use a car for both business and private use, you can only claim the business portion.

The deduction is also limited to the business portion of the car limit.

For example, if you use your car for 75% business use, the total you can claim is 75% of $57,581.

What happens if you’ve ordered and paid for your car by EOY, but not received it?

Bad news, sorry.

You must have first used your car, or have it delivered and ready for use, between 12 March 2020 and 31 December 2020.

You cannot claim the instant asset write-off for this period if you have not received your vehicle by 31 December 2020.

Different eligibility criteria and thresholds apply to assets first used, or installed ready for use, prior to 12 March 2020.

Still scratching your head? The below ATO examples* below should help clarify further (*names have been tweaked for fun).

Example one: Darryl and Debbie buy a luxury car

Darryl and Debbie run Downit Wines, a small winery and vineyard business on Tassie’s beautiful east coast.

On 27 March 2020, their business purchases an $80,000 luxury car that’s designed to carry passengers to and from the Hobart and Launceston airports.

Now, because it’s a car, the maximum amount they can write off is the car limit of $57,581, not $80,000.

But pump those brakes for a second.

It turns out they’ll only use the car for work purposes 60% of the time (and 40% personal), so they’ll only be able to claim $34,549 (60% of $57,581).

The business can’t claim the excess cost of the car under any other depreciation rules.

Example two: Darryl and Debbie buy a ute

It’s not all sommeliers and sipping at Downit Wines.

Darryl and Debbie also need some horsepower to supplement the hard yakka they do around the vineyard, so they bought a ute for $65,000 on 27 April 2020.

Now, the ute isn’t designed to carry passengers, has been set up with all the tools in the tray, and has more than a one-tonne load capacity, so the car cost limit of $57,581 doesn’t apply.

This means the business can claim a full deduction of $65,000 as an instant asset write-off (assuming the ute is 100% for work purposes).

Is your business eligible?

The expanded instant asset write-off scheme can now be accessed by businesses with an annual turnover of up to $500 million (up from the previous $50 million cut-off).

But remember: the vehicle must be used or ready for use by December 31.

So if you’d like help obtaining finance to purchase the vehicle before the EOY deadline then get in touch with us today – we’re ready to put the pedal to the metal for your business.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.