On a previous blog post we talked about how buying a car can fix your credit score. Now we'll talk about how it can lower your business' tax bill. It has always been true that motor vehicle expenses are tax deductible, with purchases helping to bring down the annual tax bill. In 2016, small businesses wishing to purchase a new vehicle stand to gain even more, by benefitting from generous tax deductions available on vehicle purchases up to $20,000 value.
Under the scheme, introduced in last year’s budget, if your small business has an annual turnover of less than $2 million, it can receive an instant asset write-off on equipment purchases of up to $20,000. To qualify, your business needs to be actively trading, and demonstrating this in the form of quarterly Business Activity Statements.
The beauty of the timing is that dealerships are also offering a range of end of financial year deals, making June a great month for a new vehicle purchase. Deals cover city and small cars, SUVs and 4WDs, family cars and people carriers, and performance and luxury vehicles, as well as UTEs. To save on research time this close to the financial year’s close, you can see these listed on sites such as www.drivewholesale.com.au or www.carsales.com.au.
With the instant write-off, the vehicle’s purchase cost can be included in your 2016 financial returns. So, for an expenditure of $20,000, under a small business tax rate of 28.5%, the business will get back $5,700.
Vehicles costing over $20,000 are not eligible, but can be added to the depreciation ‘pool’ in the business tax return. It will then depreciate at a rate 15% in the first year and 30% after that.
This offer applies to any vehicle purchases for the small business, including used vehicles as well as new. To be able to claim the deduction this financial year, the car needs to be ordered and also in use by 30 June 2016. Time is of the essence, so it’s worth looking into car finance for the purchase sooner rather than later.
Calculations for running a business vehicle – or a mixed use privately owned vehicle – remain the same as in previous years. Small businesses can claim:
- cents against the kilometer travelled,
- up to one third of receipted expenses, or
- the business-use percentage of each car expense, based on the logbook records of your car’s usage.
Are you looking for finance to help you purchase a new vehicle?
1800Approved is one of Australia’s fastest growing car and asset finance brokers. We specialise in car finance, equipment finance, plus insurance and warranty services, and have previously arranged deals from AU$10k to AU$5m.
1800Approved services clients across Australia, working with over 30 independent lenders to find the best deal.
We can also help with sourcing your new and used car warranty, and by sourcing vehicles and equipment through our Drive Wholesale arm.
To learn more about how we can help you, call us today on 1800 277 768.