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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 AssetAccountantβ’ 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 βluxury carβ 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?
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.
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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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