Huge Tax Break for New Car Purchases
If you have an ABN and are in the market for a new car, most news is good news, thanks to the international economic downturn. While dealers have regularly proclaimed down the years that there has never been a better time to buy, this time it is really true and for several reasons. And it might get even better after July 1.
Not only can you crunch a sharper deal than at any time in living memory, but K. Rudd, esquire (‘My name is Kevin. I’m from Queensland. And I’m here to help’), added a big tax incentive to purchasing new vehicles between December 31 and the end of this financial year in the form of a 30 per cent investment allowance. Amazingly, it seems that business operators have so far not rushed to embrace Kevin’s generosity.
It works like this. If you buy a car for $20,000 then you can claim 30 per cent of the purchase price, i.e. $6,000 as a tax deduction. That is the current situation. The increase from 30 to 50 per cent has yet to be approved by Parliament but the odds are that it will be. It is hard to see the Liberals objecting to any move that so strongly advantages small business, the backbone of the economy.
This is the single greatest tax break I have ever witnessed in the cost of running a business vehicle or, indeed, many business vehicles. Avis and Budget, are you listening?
The weight now shifts from leasing to buying the vehicle outright whether on borrowed funds or for cash.
This investment allowance effectively spells the end of leasing because you have to own the car, and it has to have been purchased as a brand new vehicle, to qualify. Traditionally, it has always been a toss up between leasing (i.e. borrowing) a new car and entering a hire purchase or chattel mortgage contract, when the car legally counts as yours. (On cars below the luxury tax threshold of $57,180, the full lease payment counts as a direct tax deduction but you cannot double dip to claim depreciation). Under the new deal, you can still claim the interest on your hire purchase repayments plus depreciation at the normal rate. This means, in practice, that the tax deductibility of a new vehicle has never offered more appeal. If you buy your new wheels for $20K, then you are getting the same tax benefit as on a much dearer car under the previous rules. The luxury tax threshold still applies, so don’t rush into your Porsche or Ferrari showroom on the strength of this new deal. It is meant to operate in among the Corollas, Commodores and Accord Euros.
Obviously, the primary motivation for this investment allowance was to bolster new car sales. An improvement in April suggests it might be beginning to bite but the numbers for January to March were disappointing. Surely, if the 50 per cent allowance is passed by the Opposition parties, demand for new cars will skyrocket. If so, everyone wins. As with any other major business expense, if you are unsure about it, you should ask your accountant. I just did. If we did not already have eight cars in the family, I think I would have been a contender!
