ATO Rules: Luxury Vehicles and Depreciation for Vehicles

AssetAccountant™ is sophisticated fixed asset software that takes care of all of your fixed asset depreciation and leasing.

Australia and the ATO have some particularly interesting interpretations and rules around the application of tax and depreciation relating to vehicles detailed below.

Of course AssetAccountant™ navigates all of these rules elegantly.

ATO Definition, What is a "Luxury Car"?

The ATO has a somewhat different definition of what a luxury car is compared to the average person in an average context.

For most of us, we think of luxury cars as a German performance car or one of the many fancier 4WDs that have become popular in recent years.

But for taxation and depreciation purposes, the definition is more about thresholds.

The ATO defines a ‘luxury car’ as any motor vehicle that has a purchase price exceeding the luxury car threshold.

The luxury car threshold is indexed yearly but is at the time of writing it is $68,740 or $77,565 for fuel efficient cars (effective from July 2020).

This means the ATO definition of luxury cars can include those often considered mainstream vehicles – E.g. sedans, station wagons, SUVs and 4 Wheel Drives (4WDs).

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Luxury Car Tax

Luxury cars are subject to a Luxury Car Tax when sold or imported into Australia.

The LCT is set at 33% and applies to the value of cars with a GST-inclusive value above the Luxury Car Threshold of $68,740.

This tax is paid by businesses that sell or import luxury cars (dealers), and also by individuals who import luxury cars.

For example, a $100,000 BMW imported into Australia exceeds the $68,740 luxury car limit, so $31,620 will be subject to the Luxury Car Tax. At the 33% rate, $10,316 Luxury Car Tax will be payable to the ATO by the importer (and no doubt on-charged to you or your business!)

What is the depreciation allowance or "Car Limit" as the ATO refers to it?

The car limit effective from Jul 2020 is $59,136 and from Jul 2021 is $60,733. This maximum allowance for depreciation applies to passenger vehicles designed to carry a load less than one tonne and fewer than nine passengers. So if you buy a vehicle for business and it cost $100,000 (NB: irrespective of any amount you were paid for a trade-in), only $59,136 of this amount is able to be depreciated. The “one tonne” limit deserves a closer look. The one tonne limit relates to the maximum load your vehicle can carry, also known as the payload capacity. The payload capacity is the Gross Vehicle Mass (GVM) reduced by the basic kerb weight of the vehicle. The GVM is always noted on the compliance plate by the manufacturer, The basic kerb weight is the weight of the vehicle with a full tank of fuel, oil and coolant together with spare wheel, tools (including jack) and factory-installed options (NOT including passengers, goods or accessories added after original specifications).

Which vehicles are exempt from the Car Limit?

The full purchase cost of these exempt vehicles can be depreciated:

  • Any vehicle with a payload (calculated as per above) of greater than 1 tonne.
  • Also any vehicle designed to carry 9 or more passengers.
  • It does not apply to motorcycles or similar vehicles.
  • Or to vehicles fitted out for use by people living with a disability.

Taxable use

If you use your vehicle for both business and private use, you can only claim the cost of
the business portion. This applies not only to vehicles, but applies to all assets you intend to depreciate.

If the car limit above applies to the vehicle in question, the depreciation deduction is limited to the business portion of the car limit.

For example, if you use your vehicle for 80% business use, and it cost more than $59,136, the total you can claim depreciation is 80% of the car limit of $59,136 which equals $47,308.

Why our clients love AssetAccountant™

Up until 2021 we had been using Excel spreadsheets to calculate and manage fixed asset tax depreciation for the group's registers, which was not sustainable. To address this and to implement automation of the process, we researched solutions offered in the market, including by the large accounting firms and specialist software providers. After thoroughly vetting AssetAccountant as a vendor, testing the software and its calculations, and reviewing the company’s data security, we committed to implement the software for all tax fixed asset registers for the Whitehaven Coal group. Since implementation we have been very satisfied with the decision. The software is intuitive, robust, easy to use, and accurate. AssetAccountant’s commitment to ongoing development of the product's features has also been impressive.
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Greg SinghGroup Tax Manager, Whitehaven Coal Limited
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Leanne SpiteriFounder, Virtue Private Advisory
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GST consideration for depreciable amount and the Car Limit

If you’re registered for GST and can claim the full GST credit, exclude the GST amount you paid on the car for depreciation purposes.

If you’re not registered for GST, include the GST amount you paid on the car.

What About the Instant Asset Write Off?

Vehicles are able to take advantage of the Backing Business Investment Instant Asset Write Off rules.

Although if you’d prefer not to claim the full amount of depreciation for tax purposes, you don’t have to.

If your business is eligible to claim the instant asset write-off, you need to consider the car limit as described above. You cannot write-off more than this limit for a vehicle.

To use the instant asset write-off you must have used your vehicle, or had it delivered ready for use, between 12 March and 31 December 2020.

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