16 September 2020

Instant Asset Write Off – Cars

The small business Instant Asset Write Off was increased to $150,000 in March 2020 as part of the Governments COVID-19 response measure.

Small businesses can now claim an instant write off for business assets purchased and installed ready for use by 31 December 2020, where the purchase price is below $150,000.

However, one important item to note is that when applying this new instant asset write off limit to a car, there are some limitations on how much you may be able to claim as an immediate write off.

Firstly, let’s get an understanding into what exactly a car is for the purposes of income tax. A car under tax law is defined as a motor vehicle primarily designed to carry people, that is designed to carry both a load less than one tonne and fewer than nine passengers.

The instant asset write off for cars is limited by the current car deprecation cost limit which is currently $59,136 for the 2021 financial year. This car cost limit means that if you purchase a car for $70,000, under the depreciation car limit threshold you are only able to claim an immediate write off of $59,136, with the remaining excess cost of $10,864 unable to be claimed under any immediate write off or other depreciation rules.

Depreciation Limit

This depreciation cost limit only applies to cars, and not all motor vehicles fit the technical definition of a car. For example some utes and vans are outside the definition of a car, as they are not primarily designed to carry persons, and therefore the cost limit does not apply. Whereas a popular 4wd wagon that may be on road for $120,000 would be a car and therefore the cost limit apply, limiting the immediate write off and GST claim.

There is a technical calculation as to what ‘primarily designed to carry persons’ is and isn’t, and therefore whether your vehicle purchase may be eligible for the immediate write off.

There are also modifications and upgrades on the market that if done to the car prior to purchasing may change the immediate write off and depreciation position. Should you be considering purchasing a vehicle and have any questions on the car cost limit, immediate write off, depreciation or GST claim please speak to us.