“Should I buy a new car through my business with the Instant Asset Write Off?” … It’s a common question as we approach the end of the financial year. Especially in 2020 as car dealers have some tempting offers right now.
The Instant Asset Write Off lets you write off the cost of the car immediately, rather than writing it off (depreciating it) over its useful life.
However, it’s important to know that this is not an actual cash handout, it’s a tax write off. So, that means if you’re facing a high tax bill this year, it could be an effective way to reduce your tax.
But there are other factors to consider.
Luxury Car Tax Limit
If you’re buying a luxury car, there is a limit on how much you can claim as a tax deduction. For the 2020 year, the limit is $57,581. This means that even if you pay more for the car, you can only claim the amount of the limit.
Yes, you can claim the GST deduction, but the limit also applies here. That means you can only claim 1/11 of $57,581, if the car is 100% business use.
If you’re buying a car less than the luxury car tax limit, you can claim the full amount under the instant asset write off, if it’s 100% business use.
Fringe Benefits Tax
Fringe Benefits Tax (FBT) applies to any private use of the car.
If you have high business use, FBT will be low and you can probably handle it OK. But if you have high private use, you will be belted by FBT. (It’s a very harsh tax on personal benefits provided by a company).
These are two key issues to think through, which is a reminder that it’s best to do your numbers and think them through before you fall in love with the car!