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 finances, and how to make the most of 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
If you run a small business you’re probably aware that the original scheme was introduced in the 2015/16 budget and was due to expire in June this year. The great news is that as part of the 2018 federal budget announcement it will be extended to June 2019. This will be a welcome relief if you’re looking to take advantage of immediate deductions.
Any asset that decreases in value over time that you use for your business including; work vehicles, machinery, tools, office equipment, IT hardware and much more.
If you’re unsure about what you can purchase and claim under the scheme, why not speak to your tax accountant and ask them to provide a full list of eligible assets, or read the ATO’s general depreciation rules.
You can’t be cheeky, the item you claim must also be directly related to how your business produces income (so if you’re a tradesman it’s unlikely you could claim equipment such as an oven that would be used by a baker).
Can I claim it?
The $20k write-off is available to all small businesses with an annual turnover up to $10 million.
The write-off is also uncapped, which means there’s no limit on the number of assets you can claim, just as long as each individual asset falls under the $20k limit (and is eligible).
If your asset is worth more than $20k, you can still claim the deduction, but over several years, as opposed to being able to claim it all back in the one financial year and having that money on hand to help your business grow.
How it affects your tax bill
If an asset decreases in value over time you can claim some depreciation on that asset (whether that be a vehicle, office equipment, tools etc) and if it’s meant to last for 10 years, then you’re able to claim 10% of its cost each year. The way the Instant Asset write-off scheme works you claim that depreciation in a one-off lump sum instead of over that ten-year period.
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, 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.
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.
Any asset you buy and use before June 30 this year will be eligible to be claimed. From July 2018, all purchases will be included in your 2019 tax return - which means you'll have to wait a year to get your money back in your pocket! So don’t miss out, get in touch with a Stratton consultant who can help put you on the right foot for the next financial year!
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.
We can also help source the car for you, through our partner carconnect. Carconnect can take care of the purchase, the finance and the insurance - delivering your new car direct to your door.
If you want to take the hassle out of buying and financing a car, speak to a finance consultant on 1300 787 288 or get an online quote and find out how Stratton can help you make the most of tax time. But hurry, June 30 will be here before you know it!