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Small Business Tax Offset to purchase car

Discussion in 'Accounting, Tax & Legal' started by jrc77, 25th Oct, 2009.

  1. jrc77

    jrc77 Well-Known Member

    26th May, 2008
    I am starting up my own business and am looking at utilising the small business tax offset (50%) to purchase a new car (which will primarily be used for business purposes). I am trying to get my head around the "actual" cost of the new car.

    The business will be operating as a trust with corporate trustee.

    If I spend $40k (incl gst) on the new car, do I get:

    1. GST credit of $3636 (as business is registered for GST)
    2. Reduction of income in the trust for the year of $36,363 (as the car is an expense?) reducing tax by $13818 (assuming I'm in the 38% tax bracket).
    3. The bonus tax offset of 50% - so an offset of $18181 reducing tax by $6909 (again assuming in the 38% tax bracket).
    4. Depreciation over the life of the car? If so, how many years is the car depreciated over? Say it can be done over 5 years, is that 20% per year -meaning a tax offset of $7272 per year, saving $2763 in tax per year).

    So for the $40k outlayed, I would get back -

    $3636 (GST) + $13818 (income reduction) + $6909 (tax offset) + ($2763 per year for 5 years?).

    I am anywhere near close? :)

    Also, what are the FBT implications if there is some personal use of the car?


  2. Meggsy

    Meggsy Well-Known Member

    15th Feb, 2007
    Brisbane, QLD
    I believe you are pretty close.

    If you are registered for GST you would get the GST back in your next BAS (depending on how you finance the vehicle).

    The vehicle would be capital in nature, so you would only be able to claim depreciation at 25%, you cannot deduct the entire cost of the vehicle in one year.

    Investment allownace of 50% on the GST exclusive vehicle cost

    You would need to pay FBT on any private use. There are a couple of ways to work this out. Just remember that you need to use the car for more than 50% business use to qualify for the small business investment allowance.