The Top six questions that I receive from business owners in the lead up to 30 June Tax Year End – Question #2

Top Tax Question #2 – If I buy a vehicle, will that reduce my tax?

Short answer: Yes

Detailed answer: The cost of the vehicle used for business and acquired by the entity which operates your business, will be able to claim a deduction for depreciation of that vehicle. If the cost is greater than $20,000 net of GST, then the normal depreciation rules will apply. The standard depreciation rate for a motor vehicle designed to carry less than 1 tonne is 25% on Diminishing Value.

For example, if you purchase and receive delivery of a $50,000 (net of GST) Ford Ranger on 15 June, you will be able to claim depreciation for the $50,000 at 25% pro-rata for the days in the year held for use, i.e. 15 days. In other words, $50,000 x 25% ( $12,500) divided by 365 days times 15 days (4.11%) equals $514 (rounded). Multiple this by your income tax rate (say, 27.5%), that gives you a tax saving of $141 for a $50,000 motor vehicle purchase in the first year. The greater benefit will be seen in year two when you have a full year of depreciation.

If you would like further clarification or have any other questions, please do not hesitate to ask us.

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Tony Dimitriadis