Car finance – why it pays to pick your vehicle with care

It’s easy to make a critical mistake when it comes to buying a business vehicle. We explain the trap to avoid.

Article published 21 October 2020

Earlier this year, the Morrison Government raised the limit of the instant asset write-off from $30,000 to $150,000. From 12 March 2020 until 31 December 2020 the instant asset write-off the threshold amount for each asset is $150,000 (up from $30,000) eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million). 

The 2020/21 Federal Budget later built on this, with a virtually unlimited price cap for many businesses.

To be precise, businesses with annual turnover up to $5 billion, will be able to write off the full value of any eligible asset they purchase for the business until June 20221.

It’s great news for small and medium enterprises (SMEs), who may be able to enjoy a tax break today while investing in new equipment for future growth – and cars are a popular choice.which can enjoy a tax break today while investing in new equipment for future growth – and cars are a popular choice.

Research shows one in two businesses would use the expanded instant asset write off to buy a new vehicle2. But there is a catch that business owners should be aware of.

While most types of business equipment could be eligible for the $150,000 instant write off, cars don’t share the same unlimited price threshold. If you’re thinking of buying a Lamborghini or Porsche for the business, you could be caught short.

That’s because a car limit applies to passenger vehicles, and the limit for the current (2020/21) income year is $59,1363

Back to the family sedan, right?

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Only business use can be claimed

The instant asset write-off is also limited to the business portion of the car’s purchase price4

Let’s say that you buy a car costing $59,000 for the business. But you only use it for business purposes 75% of the time. The remaining 25% sees the car used to ferry kids to Saturday sport or taking the family on road trips. This means, the total you can claim under the instant asset write-off is 75% of $59,000, which equals $44,250.

The tax man defines ‘passenger vehicles’ as being designed to carry less than one tonne and fewer than nine passengers5. So if the family is happy being driven around in, say, a one tonne ute, you may be able to claim a higher purchase price – though still bearing in mind the rules around private use.

It is always important to speak to your accountant before you decide on your next choice of vehicle.

Mortgage Choice can help with competitive vehicle finance

It’s also important to get some expert advice on how to finance your new vehicle. Be especially wary of car yard finance offering very low interest rates to ABN holders. These deals may sound sweet, but read the fine print and you’re likely to find there is a substantial ‘balloon’ payment remaining at the end of the finance term.

We can help you find the commercial finance that’s best suited to your business. It’s a big time and money saver, and it lets you focus on running your business, while I do the legwork tracking down a great deal. 

Mortgage Choice even has a free car-buying service that helps you get the best price on your new car from dealers around the country.


Posted in: Small business

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