Question #2: If I buy a vehicle, will that reduce my tax?

Hi, my name is Tony Dimitriadis, I run an accounting & advisory firm and I specialize in helping ambitious builders and property developers build a financially rewarding tax-efficient lifestyle business.

The second most popular question I get asked up to June 30 is “If I buy a vehicle, will that reduce my tax?” Well, the short answer is yes.

But a more detailed answer is that the cost of the vehicle used for business acquired by an entity which operates your business will be able to claim a tax deduction for depreciation of that vehicle if the cost is greater than thirty thousand than the normal depreciation rules apply. So you can’t get the complete 100% right off.

So in other words, from a standard depreciation rate for a vehicle that’s greater than thirty thousand, will be twenty-five percent on a diminishing value basis. For example, if you purchase a vehicle and receive delivery of it, let’s call it a Ford Ranger (fifty thousand dollars), you’ll be able to claim the depreciation for their fifty thousand at a 25 percent, pro rate for the number of

days you’ve used it in the year. So if you have bought it on 15th of June, you’ve got fifteen days of that 25 percent of the 50 thousand which is 12 and a half thousand. 

So you need your pro rate of that, so it’s going to equate to about five hundred dollars worth of depreciation. So if you’re running a company and your tax rate is 27.5% percent, then that tax benefit is going to be a hundred and forty dollars. Doesn’t sound like a lot does it? Well, it’s not, but the reality is it’s not year one but year two and three where you’re gonna get the benefit. So you’ll get the benefit complete if you’re buying an asset and the thirty thousand dollars but not for any assets over thirty thousand.

So you need to understand that yes you will get the tax benefit from buying a vehicle or any other asset for that matter. But any assets over thirty thousand, the benefit will come in years two and three and so on. So hope you found this useful. Thanks for joining me. Look forward to speaking with you soon. 

Tony Dimitriadis