Small business tax break increased & extended
May 13, 2009 by Matt Brogan
The peak body representing the Australian automotive industry, the Federal Chamber of Automotive Industries (FCAI), says the Federal Government’s Budget decision to increase and extend the investment tax break for small business provides a valuable incentive for new vehicle sales.
Small businesses will be able to claim a bonus tax deduction of up to 50 per cent – up from 30 per cent – on the cost of new vehicles acquired between 13 December 2008 and 31 December 2009.
“The tax break will help stimulate the new vehicle market and support jobs in the industry,” FCAI Chief Executive Andrew McKellar said. “Every plumber, every painter, every electrician – in fact any small business owner – is urged to take full advantage of this offer.
“This measure offers an incentive of real value and will encourage small business owners to bring forward purchasing decisions. The tax break offers a huge saving on the cost of a new vehicle. It provides a real boost in confidence to small businesses looking to undertake new investment in coming months.”
Print it: 
So has it passed. I was told the decision was to be made on the 1/06/2009
Does this “infrustracture” incentive apply to more than just cars? I’d love to push through a computer hardware and software upgrades. Do they qualify?
But has this gone throught the Senate yet?? Last I heard this probably wouldn’t be passed until mid June? I’d also wager there are a huge amount of unmentioned string attached that the Government want to get through at the same time, otherwise this would have flown through the senate!
It has not passed the senate yet- not clear how they’ll vote but you’d expect the libs/nats to support it given their constituency. Computer hardware is covered but software (as an “intangible asset” I think) is not. As Frontman says the risk is if it gets bundled up with a whole lot of other more controversial measures to get thru the senate and then fails. A $28k upfront tax deduction on a new car would be pretty useful…
The fact that it is not law yet would be a worry if the original deadline of 30/6/09 still applied. Then there would be a definite chance that you would spend money on the promise only to have the senate take it away from you.
The extension to end of calendar year 2009 is welcome. Expect sales of vehicles to be stimulated from the day after the budget passes the senate and becomes law.
Until then, your life is in Bob Brown’s hands. He has already moaned about single mothers not getting more, so watch out for him to put a fly in the ointment – he has no other reason for being, so he has to objcet, doesn’t he.
I guess all the self employed professionals out there will be creaming themselves. Just think of all those doctors and lawyers who will be able to claim 50% of their new BMW or Merc back in the next finacial year. Given that over 80% of new cars and trucks are imported i hardly see how this is going to stimulate a great number of local jobs.
And you cant claim it on a used machinery, plant or car (or demonstrator) only new, so i hope no-one out there is looking to offload a late model used vehicle or piece of machinery, those sellers could be in for a hard time finding a buyer.
On a positive note, buyers of SAAB, Volvo, Renault and Hummer vehicles will be able to depreciate their vehicles almost as fast as they lose value in the first year.
Treasury says:
“An asset will still be considered to be new if it has only been used for the purposes of reasonable testing and trialling” –> Demonstrators are OK.
“The car limit for 2008-09 is $57,180″ –> Maximum claimable is therefore limited, regardless if more expensive.
I bought mine 2 months too early…….Bugger.
Now Ill have to write mine off over a longer period.
But in the end it doesnt really matter because it doesnt really mean more money back in your pocket.
The ATO will only catch you out in 3 years time when you sell it.
The negative side is that in 3 years time you will be taxed when you sell it because the sped up depreciation will mean you will make good coin on it when you sell it.
And then the other negative side is that this will only bring forward sales, not create new ones.
What will happen post Dec 31???
I think they are best just to cop it on the chin that these are the bad time and the quicker they learn to deal with it, the sooner they will revive.
If they keep trying to inflate the sales figures you will only extend the “bad times” and delay getting back to the norm.
When they say small business is it any small business or is it only ones that claim GST ?
So if you have an ABN regardless of your business income you can claim this? Even if you dont make the GST threshold?
I love this offer from Brother Wayne – I wish he would buy my trade though because I cannot get a call for it…
Is everyone having trouble shifting their vehicle online?
Perhaps time to get that BMW X6. Thanks Krudd, first the $900 and now this!
RWD,
GST and Income tax are 2 different things, and neither one of them affect the other.
You should be fine to claim even though you arent GST registered.
Those that are GST registered just get to claim the GST back in full then will get a 50% claim on the balance whereas those in your situation will get a 50% claim on the amount including the GST.
E.g.
car inc GST = $33,000
Those that are GST registered claim back $3K at their next Quarterly and get a $15,000 tax deduction at the next income tax evaluation.
Those in your situation (non registered) will only claim $16,500 at their next income tax evaluation.
Also keep in mind if you use your vehicle for private use aswell, you will only get a 50% cut on the business percent of your vehicle
Also keep in mind that having an ABN doesnt instantly mean you qualify for vehicle deductions
May I ask why you arent GST registered???
You are better off to be, its the end consumer that pays GST, not the business
Andrew M: Your post contains factual errors. It IS actually giving you more money in your pocket. It’s not an additional depreciation allowance, its a 50% upfront deduction. You can still claim the full 100% depreciation of the vehicle over its normal effective life (8 years). Effectively you are receiving a total of 150% deduction of the value of the car.
I understood the way Adam mentioned it – hence why it’s a BONUS tax deduction. Or else they would have called it an UPFRONT tax deduction. If that was the case, the commissioner allows you to already estimate your own useful life on 2nd hand vehicles and this wouldnt be much of a difference – but like you said, then there is a balancing adjustment when you sell it if you depreciate it aggressively.
And to resolve it, just had a look at our guidance online and it says its an ADDITIONAL 50% deduction.
http://www.deloitte.com/dtt/pr.....74,00.html for reference
Adam,
If the adjustment when you sell the asset will consider the 50% “bonus” deduction, then no its not money back in your pocket.
Im not sure whether you misunderstood my example or whether I wasnt clear enough or If my understanding is skewed.
Please tell me exactlly which bits of my previous post is wrong, but before you do ill clarify my example
What I was saying is that the 50% bonus would be worth 15K to registered GST goers
and 16.5K to non GST registered goers
Agree???
I wasnt saying you will be left with 15k and 16.5k respectively to depreciate at 12.5% over 8 years, i was trying to display what ones “Bonus” amount might look like.
Of course you will claim your “bonus” amount coupled with the actual depreciation for the vehicle as well as your fuel, rego and insurance for eg
Just so you all know, Under the Explanatory Memorandum Example 1.5 page 14 it clearley sets out that demonstrator vehicles (vehicles liscenced in a dealerships name to demonstrate a vehicle) are not elegible to claim the tax break.
It does not constitute as reaonable use!
Andrew M
this is not a “bonus” or money back in your pocket.
If you buy a New vehicle, and are able to claim Depreciation on the vehicle, and you have a tax liability, 30% or %50 depending on your turnover,
You wil efectively get a tax credit towards yoru liabiltity.
you can then Depreciate your vehicle from its new price at 12.5%
Its a tax credit its nothign up front and its actually quite clear cut and simple! Better than ruds stimulous package! is really driving sales allready!
What are you talking about Tyson? According to page 12 of the explanatory memorandum for the new bill “Demonstrator vehicles CAN qualify as ‘new’ assets provided they have only been used for reasonable testing and trialling.
Legislation: Schedule 1, item 4, section 41-20
Explanatory memorandum: Paragraph 1.60″. Are you reading a memorandum for the existing deduction? It has a different set of qualifying rules.
Sorry, I was quoting the FAQ for the explanatory memo, not the explanatory memo itself. But my point still stands. Unless they’ve released something else since March??
The 50% is an additional tax deduction, there is no future “clawback” so you will not be penalised for claiming greater depreciation when you sell ie Adam is correct. All the official info as well as advisor interpretations state fair and reasonable testing is allowed, specifically including demonstrator vehicles.
I Like these bits too:
“63. Unlike deductions under Division 40 (and previous investment allowances), the Tax Break will not be reduced for any non-taxable use of the asset or apportioned based on the actual taxable use of the asset over a particular income year. This approach improves certainty for taxpayers.
64. However, if you are the entity claiming the Tax Break, you must be able to demonstrate that at the time you started to use the asset, or had it installed ready for use, it was reasonable to conclude that you will use the asset principally in Australia for the principal purpose of carrying on your business.”
PROVIDED you INTEND to use a vehicle PRINCIPALLY for carrying on your business at the time of purchase, it doesn’t matter if, for whatever reason, that use changes, or even if you dispose of the asset within 12 months. There is no claw back.
Pity it doesn’t apply to Australian made cars. Where is the Greens and independants now?
I suppose we have to wait until after 1st June and see what the Senate vote for.
I can see double dissolution coming.
Freddy- So you don’t even need to exclude non-business use- that’s generous!
I think what has confused Tyson re demonstrator vehicles is the quoted example in the legislation explanatory memoranda (p. 14 of pdf). In that case, the “demonstrator” is not eligible because the car dealer “regularly used the car to drive to and from work”, which does not constitute resonable testing & trialling. Otherwise, it would qualify.
So now you have to trust the car salesman to tell you what it’s been used for before you buy it!
Yeah Davo – principal business use only is all that is required to claim the deduction according to the EM.
And that is a wierd example in the EM. How are buyers to know what a demonstrator has been used for? Plenty of dealers in my home town let their missus and sales staff use the demonstrators to travel round town – provides a cheap day to day car for them and it helps drum up business for the new models to be seen out and about.
And arguably the dealer driving it home and back could also constitute testing by him of a product he’s selling. Hard to see the ATO being able to interview the dealership staff as part of an audit a few years later to determine if anyone on staff drove it- or is this all logged by the dealer?
It would seem reasonable that if the dealer is selling it as a demonstrator the purchaser should not be required to investigate the exact usage before claiming a deduction. Then again, common sense is not an ironclad defence!
Wow,
tax deductions have always been a grey area, this looks to be just the same shade.
So this isnt a tax deduction that will affect the balancing adjustment of the vehicle if you were to sell it???
Well if thats the case, then thats not bad.
Can someone please give me the yay or nay on that….
And so private use doesnt affect the “bonus” either???
Whats stopping me from buying a new car for my misses and claiming a certain percent for my business use aswell as the 100% that my vehicle is.
Would that therefore mean I could apply for this bonus incentive and get it in full???
That rule that you only have to “Intend” to use it for business use applies to everything.
as i currently understand it there isnt much saying you cant go out and buy a new fridge with intent to use it in the staff room at work and then at last minute using it at home instead.
“But Mr audit man sir, I intended to use it at work, then after i put down the deposit i realised i had no room to fit the side by side stainless steel with an ice maker and internet in the door fridge at work, so i had to keep it at home”
“I suppose you intended to use the 50 inch LCD at work too???”
I assume GST will come off the price to calculate it for those registered, and will remain on to calculate for those not registered???
Im gonna weigh into the Demonstrator debate…..
Perhaps once it is registered to the dealership, it no longer qualifies.
What i mean is usual testing and trialing is conducted under the use of trade plates, and at that time there is no specific registration applied to the vehicle.
Perhaps once it is individually registered they will consider it to be no longer used for testing and trialing…..
Ive never test driven a new car that was registered.
Just a thought
Tyson,
whats the turnover threshold between the 30% and 50% bonus???
Does it favour smaller or larger turnover.
Just in thinking about it, because i bought mine about 2 months early, Id probably be better to go and trade it in already ha ha ha ha ha
Question 44 — Are ‘demonstrator’ vehicles eligible?
108. Demonstrator vehicles can qualify as ‘new’ assets provided they have only been used for reasonable testing and trialling.
Source:
http://www.treasury.gov.au/doc.....090513.pdf
It is as I explained. 50% upfront deduction as long as at the time of acquisition it is predominantly expected to be used for business purposes. If that use changes in 6 months, that doesn’t affect it. You do not have to apportion it business use vs private use like you do for expenses.
BY the way, this bill passed the House of Reps today.
Turnover max is $2mil for 50% (i.e. small businesses)
Larger businesses 10%
I’m sure they are quite aware this will be used for vehicle purchases that will suddenly become private vehicles. I’d say much of what is behind this is also an attempt to stimulate the economy through getting vehicle sales out of the doldrums.
Passed the senate without amendment on the 14th May. Just awaits royal assent. Woohoo.
What if I an employed as a Real Estate Salesperson (Wages + Commission)and receive a car allowance as part of my package. Can I then purchase a New Vehicle (registered as business) and Claim 50% of the purchase back on my total income?
Adam,
from memory of what i read its 30% for larger businesses.
The 10% kicks in if they dont get in before june 30 this year.
small businesses still have till dec 31
Brasco,
do you normally claim for decline in value on your vehicle???
That is the real determining factor.
those that claim other methods such as cents per kilometre etc arent eligible
Hi all,
I think the demonstrator discussion is following two different points…the example that most of us are interested in is whether or not we as normal people can buy a demo from the dealership and consider it to be new for the purposes of the tax break, the answer is yes, you can…the second example is if an actual car dealer can continually register new cars as demos within the dealership and claim 50% tax breaks for their dealership on each of them, then the answer is NO, they cannot…So unless you’re a new car dealer, then demos are considered the same as new cars for the purposes of this tax break.
Hope this helps.
i have been told that for a demo to be eligible for the bonus tax break, it has to be less than 3000km and only been registered for 3 mth or less for the demo purpose.
can anyone confirm this??
cheers