Writing Off a Car For Business In Australia
Most people in business travel for work-related purposes, be that visiting client sites, conferences, business meetings or any number of other reasons. If you need a car for work, there can be company car tax benefits for buying a car such as a business tax write-off.
How to write off a car for business
The business usage component of your company car is able to be claimed as a tax deduction, which includes the purchase price, any interest on borrowing, fuel and maintenance.
When buying a car for a business tax write-off, there is a maximum amount that you can claim imposed by the ATO, called the car limit. This was $64,741 for the 2022/23 financial year, and $68,108 for the 2023/24 financial year. See the ATO website for more information.
The car limit is applied prior to accounting for business usage. For example, if you purchased a car for $80,000 in July 2022 and your log book showed 90% business usage, then the maximum amount you can claim would be 90% of $64,741, or $58,267.
Keeping a logbook to establish your car business usage? The Driversnote logbook app records your travel automatically for a hassle-free, accurate car logbook.
How to claim the write-off
You can choose to depreciate the car over several years or claim it as a one-off cost on purchase, depending on which gives better company car tax benefits. To claim as a one-off cost, it must meet the Small Business Entity (SBE) instant asset write-off rules. A limit of $30,000 was in place for assets purchased and used prior to October 2020 and is currently limited to $150,000 until June 30th 2023, however, the car limit applies with a maximum of $64,741 claimable as a car tax deduction.
The car limit also applies to depreciating a vehicle purchase and you cannot claim any more than the car limit for tax purposes. You can only depreciate a car from the date it was first used, whereas if you write off the entire amount of the vehicle, you can claim the purchase price up to a maximum of the car limit as a tax deduction for that financial year.
Choose the right method for your business-related driving deduction
There are two ways of claiming a car as a tax deduction: the cents per kilometre method, or the logbook method. You can’t use a combination of both methods in one financial year. You can, however, choose whichever method gives you the biggest benefit. The logbook method would likely be more appropriate when buying a car for a business tax write-off, but you would need to look at your own situation.
If your company car has personal usage, then you also need to consider the impact of fringe benefits tax (FBT) on your purchase. Note that some commercial vehicles are exempt from FBT.
If you use your car mostly for work, then there may be significant company car tax benefits to you with buying a car for a business tax write-off. You should speak with a registered tax professional about your individual circumstances to help you determine the best way to proceed.
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