As the End of Financial Year approaches, whether you're a small-business owner or an employee, now is the time to be thinking about your car, and how to make the most of it at tax-time.
Claiming business use of your vehicle:
If you're an individual lodging a tax return (as opposed to a business), the End of Financial Year (EOFY) is the time to look at your motoring expenses from the year, and what can be claimed as deductions in your tax return.
For any motoring expense to be eligible to be claimed, the vehicle must be used, at least partially, for business or work-related activity.
So how do you claim a deduction for the business-use of your vehicle?
You have a choice of two methods to calculate work-related car expenses.
1. Cents per kilometre method
Multiplying the number of work-related kilometres per annum by an allowance of 66 cents per kilometre up to a distance of 5,000km.
2. Logbook method
Keeping a detailed travel logbook for 12 weeks (of both business and non-business usage) including car odometer readings, travel times, kilometres travelled and the reason for each journey.
From this logbook, you will nominate what percentage of car use is for work purposes. From this percentage you can then claim your total car expenses as a deduction to reduce your taxable income.
The following is an example of the Logbook Method from the Australian Tax Office (ATO):
At the end of the income year, Tim's logbook shows he travelled a total of 11,000 kilometres, of which 6,600 were for business. To work out the percentage the car was used for business purposes, Tim made the following calculation: 6,600/11,000 x 100 = 60% Tim's total expenses, including depreciation, are $9,000 for the income year. To work out how much he could claim, Tim completed the following calculation: $9,000 x 60% = $5,400
Make sure you keep all records and receipts of your motoring expenses throughout the year.
NOTE: As of July 1, 2015, the 'One-Third' and '12%' methods of claiming work-related car expenses are no longer eligible to be used.
Take advantage of the $20k Instant Asset Write-Off
It's been a year now since the government announced its two-year increase to the Instant Asset Write-Off threshold, up from $1,000 to $20,000.
What can be included?
Work vehicles, machinery, tools and any other asset that has a limited effective life.
So what does this mean for your business?
The $20k Write-Off is available to all small businesses with an annual turnover of less than $10 million.
NOTE: As announced in the 2016 Budget, from July 1 2016, the threshold for small businesses eligible to access the simplified depreciation rules is up from $2m to a $10m annual turnover.
Set to end on July 1, 2017, every asset purchased only needs to be 'in use' for one day of the financial year in order to be claimed.
Any asset you buy and use before June 30 this year will be eligible to be claimed. From July 2016, all purchases will be included in your 2017 tax return - which means you'll have to wait a year to get your money back in your pocket.
The Write-Off is also uncapped, meaning that there is no limit on the number of items you can claim, provided each individual item falls under the $20k limit and fits the criteria of an eligible asset.
The items you claim must also be directly related to how your business produces income (it's unlikely a bakery could claim equipment such as power tools that would be used by a tradesman).
If your asset is worth more than $20k, you will need to use the standard depreciation method appropriate for that asset per the ATO's guidelines.
This means that you can still claim the deduction, but over a number of years, as opposed to being able to claim it all back in the one financial year, and have that money on hand to help the business grow.
How it affects your tax bill
With the $20k Write-Off, small businesses have more money in their pocket to expand and grow.
A plumber runs his own business, and purchases a second-hand Toyota Hilux for $19,990 for the company.
With the $20k Write-Off now in effect, the plumber can claim the full purchase price of the car as a deduction in this year's tax return, rather than just the amount the car can be depreciated in the first year.
In the example outlined in the table below, with the tax rate now at 28.5% for small businesses, our Plumber will get back $5,697 from the $19,990 spent. Without the Write-Off he would only get back $854 this year, and have to depreciate the asset again next year.
NOTE: As announced in the 2016 Budget, from July 1 2016, the small-business tax rate will be dropped to 27.5%
For both individuals & businesses
Take advantage of the End of Financial Year sales
The weeks leading up to the EOFY are a great time to buy a new car. Dealers are keen to move their stock to meet annual sales targets and clear old stock before the new financial year begins.
There will be a lot of promotions and discounts in the EOFY sales, so go prepared with pre-approved finance so you can take advantage of them.
You can make a good deal great by taking into account your future plans for the car and save on the overall cost of your loan.
Whether you choose to add in a balloon payment to pay at the end of your lease or loan, or avoid charges like early-exit fees - to ensure you get the best overall deal in the long-run, look at more than just the lowest rate per month.
This EOFY, save time and money when buying a new car. stratton, in partnership with carconnect, can take care of the purchase, the finance and the insurance - delivering your new car direct to your door.
To take the hassle out of buying and financing a car, speak to a finance consultant on 1300 STRATTON (1300 787 288)
By making the most of dealer sales and government initiatives, the EOFY can be a good time to get a great deal on buying a new or used car.
Speak to a stratton consultant, or get an online quote and find out how they can help you make the most of tax time, but hurry June 30 will be here before you know it!