Buying a car with the new instant asset write off limit increase

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A few weeks ago, we shared that the $150k Instant Asset Write-Off has been extended to 31 December 2020. Since then, the most common question we received from clients is: Can we buy an expensive car (i.e., a Tesla) and write that off immediately?

Unfortunately, the answer is no.


What is the car cost limit?

The reason for this is that the ATO has a rule called the car cost limit which restricts the amount you can claim on a car (to disincentivise the purchase of luxury cars for tax deductions).

This means that you if purchased a Tesla for $100,000, only the portion up to the limit is tax deductible. The car limit for 2019/2020 is $57,581 and 2020/2021 is $59,136 (plus GST if you are registered for it). Also, the GST you can claim on the vehicle is limited to $5,758 for 2019/2020 and $5,913 for 2020/2021 (1/10 of the car cost limit).

On top of that, if the car is used for private purposes, it needs to be apportioned to reflect its private use. That is a percentage of the car cost limit, not the full cost of the car.


What does the ATO classify as a car?

Note that the car cost limit only applies to 'cars'. For this purpose, a car is defined as a motor vehicle (excluding motorcycles and similar vehicles) designed to carry a load of less than one tonne and fewer than nine passengers. This means that some vehicles are not defined as cars and are therefore not subject to the car cost limit (i.e., large Dodge RAM utes which have a carrying capacity of >1tonne). They are still subject to private use rule of course.


How private use affects your tax deductions

It’s also worth remembering that you can only claim the business percentage of all expenses relating to the vehicle - and this percentage needs to be supported by a log book showing all use for a continuous 12 week period. The good news is that this log book can last up to 5 years where the use is still representative of your actual use of the vehicle.


Make the most of it

If you are thinking of buying a vehicle (car, truck or any other equipment) it is always a good idea to give us a call first. We will guide you on the best way to do it, ensure you get a good finance deal and explain the tax implications of your decision.