A COVID-19 TAX TIP FROM MR TAXMAN #16

May 19, 2020

I am coming across too many business people thinking that they can buy a car up to $150,000 via their business & get an immediate deduction for the instate asset write-off this year.

A few things to note:

• If you purchase a car for your business, the instant asset write-off is limited to the BUSINESS PORTION of the car limit ($57,581) for the 2019–20 tax year. It will not be $150,000 like it is for other business assets purchased between 12 March and 30 June 2020. 

• Note the highlighting of BUSINESS PORTION above. If you hardly use the new car for business then the claim reduces even greater. 

• There is a significant cashflow difference between something being 100% tax deductible and the company tax rate of 27.5% (or even the highest marginal tax rate of 47%). If you outlay $110,000 for a new car which is for argument's sake 80% used for business, you will only save $12,668 in company tax ($57,581 x 80% x 27.5%).  But you would get a credit of $5,234 for GST so the net cash outflow would be $92,098

• any company car purchase is also subject to Fringe Benefits Tax come 31 March next year.

For more information about the Instant Asset Write-off then visit the ATO website.

 

 

Comments

"there is a error on your calculation, Car limit should apply on both depreciation and GST."

By: Jason on May 20, 2020 11:43PM

"Good pick up JAson - now corrected. Thanks. Makes the numbers even worse doesn't it!"

By: Adrian Raftery on May 21, 2020 11:58PM

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