Extension of the Instant Asset Write Off and how it applies to motor vehicles

The Government has announced that it will extend the instant asset write off (IAWO) to 31 December 2020 for asset purchases below $150,000. Businesses with an aggregated turnover of less than $500 million are currently eligible for the write off and it is intended that this announcement will be legislated soon.

IAWO and cars

Care must be taken if you intend on using the IAWO for cars.  Broadly, under the depreciation provisions, the maximum depreciation you can claim on a car is limited to $57,581 for the 2019-20 financial year.

For example, if you purchase a “car” for $100,000, the maximum you can claim under the IAWO is $57,581. In addition, the maximum GST you can claim on the purchase is limited to 1/11th of $57,581 i.e. $5,234.

However not all vehicles are “cars” and certain types of vehicles are not captured by this limit.

What is a car?

A car is a vehicle designed to carry
 
  • less than nine passengers; and
  • has a payload capacity of less than one tonne.
Vehicles that have a payload capacity of more than one tonne (certain utilities, dual cabs etc.) would not fall within the definition of a car and would not be restricted to the limit. There is a further exclusion from the limit for certain vehicles which may have a payload capacity of less than one tonne but are not designed to carry passengers. However, it is important that you consider the specifications of the vehicle to ensure this is the case.

The payload capacity is calculated by taking the gross vehicle mass (GVM) and reducing it by the basic kerb weight. These details are normally specified on the compliance plate by the manufacturer.

The ATO provides the following example of how the payload capacity is calculated:

Trades Business XYZ wants to replace a work utility vehicle for their business. They decide to investigate dual cab vehicles. They have narrowed their choice to two options. Both vehicles cost more than the car limit.
Manufacturer A: dual cab utility Manufacturer B: dual cab utility
GVM = 2,900 kg

Basic kerb weight = 1,950 kg

Payload capacity = 950 kg

The car limit applies to this vehicle as the payload capacity is less than one tonne.
GVM = 3,200 kg

Basic kerb weight = 2,135 kg

Payload capacity = 1,065 kg

The car limit does not apply to this vehicle as the payload capacity is more than one tonne.
 
What else should you look out for?

Only businesses are eligible to claim the IAWO and you should consider whether you or the entity in which you are purchasing the asset carries on a business.

In addition, any private use of the vehicle by an employee is subject to FBT and this may lead to a costly outcome for the business if not considered in advance. For example, using the statutory method, the taxable value of a fringe benefit is $20,000 on a car which costs $100,000. This may lead to a fringe benefits tax bill of more than $19,500! However, with some planning, this can be reduced.

Lastly, if you wish to claim a deduction during the June 2020 financial year, you need to have the vehicle delivered and ready for use by 30 June 2020 to claim a deduction this year. If delivered after 1 July 2020 but before 31 December 2020, it may be deductible next year (pending finalisation of the legislation for the extension).

Contact your Moore Australia specialist if you wish to discuss this in further detail.