Get set for car business bargains: Asset write-off explained
EXPECT to see a proliferation of car deals for $29,990 before June 30 following this week's Federal Budget.
Businesses with a turnover of less than $50 million have the opportunity to write off assets of up to $30,000 - a boon for buyers and an industry currently struggling with economic uncertainty.
Latest figures reveal vehicle sales were down by 23,000 cars in the worst opening quarter in five years.
Maroochydore-based FTA Accountants principal Robert Thornthwaite said the Treasurer estimates an additional 22,000 business will take up this higher asset write-off threshold.
"Increasing the cap from $20,000 to now $30,000 will bring a lot more vehicles into the range that fall under the threshold and it almost certainly cause a greater uptake,” he said.
"Under the lower cap of $20,000 we did see businesses struggling to find both a motor vehicle they wanted to buy and that their business needed. Businesses were forced to compromise ... they could either buy a vehicle that fitted under the cap or they could buy a vehicle that actually suited their needs. Most times the two were not compatible.
"The nature of how the cap worked, being that a motor vehicle that costs $19,999 was an immediate write off but one that cost $20,001 meant that you had to depreciate the vehicle over the life of the asset forced businesses to choose between a tax break and a practical asset.”
It's predicted the extension from businesses with less than a $10 million turnover to those under $50 million will have the biggest impact.
Operations with the larger turnover are forecast to have greater reasons to buy cars.
"The 'immediate write-off' only leads to a reduction in the businesses taxable income,” Mr Thornthwaite said.
"Businesses won't get $30,000 cash back in the bank. What they will get is a reduction in the tax they have paid or will pay to the extent of their marginal tax rate of the cost of the vehicle. So a $30,000 vehicle purchased by a company with a tax rate of 27.5% in the 2019 year will lead to a tax reduction of $8250.
"If the business makes a loss then the purchase of the vehicle will only increase the business losses and defer their future tax obligations to future years - it won't immediately get any cash back or a tax refund.”
WHAT BUSINESSES NEED TO KNOW
Timing is the key difference between an immediate write-off and deprecation.
A $29,999 vehicle and one which costs $30,001 or more being fully depreciated over three to five years is only differentiated by timing - both vehicles will provide the same amount of tax relief, the write-off is delivered straight away, while the other option is extended between three-five years depending on your depreciation options.
Once the vehicle is sold all tax adjustments will be neutralised as the difference between the sale price and the written down value of the vehicle will act to negate the effects of the immediate write-off.
"What we do know for certain is that the tax compliance landscape will be somewhat confusing for the 2019 tax year,” Mr Thornthwaite said.
The changing asset write-off rules mean:
1. Motor vehicles purchased from 1 July 2018 to 28 January 2019 could only be immediately written off if they were under $20,000 (GST exc) and your business turnover was less than $10 million.
2. Motor vehicles purchased from 29 January 2019 to 1 April 2019 could only be immediately written off if they were under $25,000 (GST exc) and your business turnover was less than $10 million. (Waiting on final legislation.)
3. Motor Vehicles purchased from 2 April 2019 to 30 June 2020 can now be immediately written off if they are under $30,000 (GST exc) and your business turnover is less than $50 million.