Ok, so don’t literally go out and buy a new car without reading the article! I’ve been looking at a lot of family SUV’s lately and the Alfa Romeo Stelvio is a great looking car! This weeks tax planning tip is about bring forward the purchase of a new motor vehicle into this financial year to claim deductions now instead of waiting until next year.
What are we recommending?
If you are planning to purchase a new business related motor vehicle in the first quarter of next financial year (July 2018 to September 2018) consider whether you could bring that purchase forward a few months to claim some deductions this financial year.
What are the benefits?
Motor Vehicle Depreciation
By purchasing the motor vehicle in this financial year you can claim some depreciation in the 2017-18 financial year.
This strategy is particularly effective for small businesses (turnover less than $10,000,000) because the simplified depreciation concessions currently available are very generous.
Under these rules, you can:
- Immediately claim the full cost of the motor vehicle in this financial year if you spend less than $20,000.
- Add any motor vehicles that cost more than $20,000 into a small business general pool and claim:
- a 15% deduction in the first year;
- a 30% deduction each year after the first year.
The great thing about the small business depreciation rules is that even if the asset is purchased on the 29th of June we can still claim a full year of depreciation, cha-ching!
Operating Costs & Interest
Motor Vehicle running costs (fuel, oil maintenance etc) paid during the year are deductible in the year you pay them. Make sure your accounting records are tracking all of these expenses ready for year end.
Interest paid on loans that are for business use can be claimed as a tax deduction. This means that some, or all, of the interest paid on the vehicle loan during the year is also deductible.
Bringing the purchase forward also gives the business the ability to claim the GST earlier too. This assumes you are registered for GST and that you paid GST on the Motor Vehicle in the first place. If, for example, you purchase a vehicle privately for the business this will likely not have GST on the price.
What not to do
This is where the Profit First Professional takes over from the tax accountant. Don’t just buy a new car for the sake of having a new car. Remember, in business cash is king. It’s important that we plan for major asset purchases and spend based on ‘need’ rather than ‘want’. If you don’t need a new car don’t buy one. If you are going to buy a new car sometime next year but not in the first couple of months then hold off and buy it next year. There is a fine balance here. You’d like the deductions this year but you shouldn’t starve your business of cash through unnecessary spending.
A note on Logbooks
The general advice given in this article assumes that you will keep an appropriate logbook and that the business use percentage is close to 100%. If you’re planning to buy a vehicle but you believe most of it’s use will be private make sure you speak to your accountant about the appropriate tax treatment.
An article specifically focused on motor vehicle expenses and logbooks will feature later in this tax planning series.