tax break question

[3sum]

Hey all,

Sadly, with my new job, my current car isn't practical anymore and unfortunately I may need to buy a hatch (I can hear all the hatch people rejoicing). I need to carry a small trolley and it doesn't fit in my car.

As far as I understand, it looks like I qualify for the Governments 50% tax break on new cars under $57K. I have an ABN, Its a small business, it makes under $2M a year and I need the car for work.
So the way I see it, I can purchase a new gen MPS or Golf GTI (the car must be new to qualify for the tax break) and get 50% off?
Am I misunderstanding it? Surely I cant get that much off?

I cant find any info on it to contradict what I'm saying. I'm hoping an accountant or someone in the 'know' can help me out.

What exactly do you have to do to qualify?

If I dont qualify, it looks like I may have to buy either a second hand Focus hatch, new mazda 2 or a new fiesta. (I dont like the old gen mazda 3 hatch. No matter how much better it drives than the rest.)

[MPS_BNE]

Hey 3Sum

I am not good at Tax stuff, but I understand that you can claim half the value of the vehicle as a tax dedcution in the 1st year.

From the ATO website:

Example 1 – small business (turnover of less than $2 million a year)
Ben operates a courier service. He orders and takes delivery of a new delivery van* on 25 June 2009 at a cost of $30,000 excluding GST.
In 2007–08 Ben was carrying on a business and his turnover was less than $2 million. Because he starts to use the van before the deadline of 31 December 2010 and his investment meets the $1,000 threshold, he is eligible to claim the bonus tax deduction at 50%.
Ben claims the GST he paid on the van in his BAS. He claims the bonus deduction of $15,000 (50% of the cost of the van excluding GST) in his company’s 2008–09 tax return.
* The tax break is available for purchases of motor vehicles for which the 'log book', 'one-third of actual expenses' or '12% of original value' method of calculating car expenses is used.
The tax break is not available where the 'cents per kilometre' method is used.
The tax break is available on new motor vehicles, including luxury cars costing over $57,180 ... However, the deduction is worked out using a cost price of $57,180, even if the cost price exceeds this amount.

Happy hunting!

[_sallz]

New fiesta are really nice

[3sum]

So basically, I have to of worked a whole financial year with my ABN (07-08 for example), then purchase the car this year to qualify?
Or
Can I purchase the car now, then work for a whole financial year with my ABN, then lodge the claim for 50% next year?

[MPS_BNE]

So basically, I have to of worked a whole financial year with my ABN (07-08 for example), then purchase the car this year to qualify?
Or
Can I purchase the car now, then work for a whole financial year with my ABN, then lodge the claim for 50% next year?

The car must be purchases this year to qualify as this was a stimulus exercise to generate business activity now, and assist the motor industry which was hit hard with the economic downturn.

I would check with an accountant (or read further into the ATO website) to see if a new business qualifies. I would assume that it would qualify as it is not going to cost them (govt) anything as you have to generate enough income to then claim the deduction.

[MPS09]

Your friendly accountant here.

My first problem are you a business? You sound like you have an ABN just to work for one employer which means you will have a PSI income issue. If you have a PSI issue you are not a business and therefore can not claim. Does not matter that you have an ABN.

If you did qualify,

First you do not get 50% off. It is a tax deduction.

So assume you are on a top marginal tax rate of 30% and you purchase a car for $40,000 (net of GST)

Tax deduction

$40,000 * 50 % = $ 20,000 (tax deduction)

$20,000 * 31.5% (30+1.5% medicare levy) = $ 6,300

which means that you would get a saving of $ 6,300 if the deduction has not moved you down a tax rate.

Please note this is just an example i take no responsability for the use of this information because your situation could be different.

Also note if you did qualify the purchase and finance has to be done before 31st December 2009.

[3sum]

thanks for the above info.

I thought that there was a chance that just because I use an ABN, doesnt mean I qualify as a small business. Even though I get paid as a sub-contractor.

What Encompasses a small business?
What tax break do I qualify for if I do get a secondhand car?

thanks again.

[Palo Verde]

u think there is no catch to this quack like a duck , walks like a duck is a duck

[3sum]

I dont get it.

[sleepy13b]

u think there is no catch to this quack like a duck , walks like a duck is a duck

That was a waste of 5 seconds of my life

[MPS09]

I do not really know what Encompasses means. If you are asking what makes you a small business.

This is easier answered to see if you can pass the PSI tests(personal services Income) rules to make you a small business.

Work through the tests on the ATO website

Working out if the PSI rules apply - sole traders

The tax breaks for a second hand car would be the normal car claims ie choice one of these

cents per Km
12% of original value
One-third of actual costs
log book

Claiming a deduction for car expenses


P.S Palo Verde I also do not understand.

[3sum]

by encompasses, I meant what makes a small business.

Ill follow those links provided.

I find the ATO website pretty misleading. They make it sound like you get 50% off the value of the car. No where is it worded how you worded it.

thanks again.

Just followed those links. It did my head in.

I think I might just have to speak to my accountant before I buy a car. I was hoping to avoid him

Looks like I might even consider an sp23.........but they seem to be holding there value a bit too well.
You know you can buy an MPS3 for $2K more than an 07 sp23!!!

[MPS09]

No problems.

In simple terms. If you are basicly an employee (you work for one company and they control where and when you work) even though you have an ABN. You are less likely a business.

If you have a number of companys you work for and you have control of the work (you can say yes to that work and no to some other work) you are more likely to be a business.

I like the SP23. I just sold my 2006 SP23 Sedan, it was sad to see it go, but I run a business so it was a good time to upgrade to the new MPS.

Saying that if you can get a MPS for just a little bit more (and you can afford it) I would go for the MPS!!!!

[3sum]

MPS = manual. I have never driven a manual and I dont really want to. An MPS3 would be fantastic though!!!

Sounds like I could be a business. They give me jobs to do, but I say yay or nay. Its always yay because I want the money

Ill wait to see what my accountant says though.

[Palo Verde]

PV no longer contracting, it was just not worth the hassles minus super minus annual leave, minus sick leave and plus workers comp insurance premiums, super, income protection premium etc etc and just annoys me the peeps that run the biz, petty all the way.

[frank]

Your friendly accountant here.

My first problem are you a business? You sound like you have an ABN just to work for one employer which means you will have a PSI income issue. If you have a PSI issue you are not a business and therefore can not claim. Does not matter that you have an ABN.

If you did qualify,

First you do not get 50% off. It is a tax deduction.

So assume you are on a top marginal tax rate of 30% and you purchase a car for $40,000 (net of GST)

Tax deduction

$40,000 * 50 % = $ 20,000 (tax deduction)

$20,000 * 31.5% (30+1.5% medicare levy) = $ 6,300

which means that you would get a saving of $ 6,300 if the deduction has not moved you down a tax rate.

Please note this is just an example i take no responsability for the use of this information because your situation could be different.

Also note if you did qualify the purchase and finance has to be done before 31st December 2009.

are you sure about those figures???
I'm pretty sure it's not a case of -
$20,000 * 31.5% (30+1.5% medicare levy) = $ 6,300
BUT, more a case of -
Say you earn $100,000.00
Say you up for paying $30,000.00 on that (we'll talk round figure of 30% here for ease of explanation)
This means, you can claim up to $30,000.00 tax break that first year, PLUS the normal depreciation for the year.
So for a car that cost $40,000.00
you eligible for 50 % the first year ($20,000)
AND you're also eligible for the depreciation (cant recall what that is, so we'll call it n)
So, instead of having to pay $30,000.00 tax that first year,
you pay $10,000.00 ($30,000 minus the break)
ALso, subtract from that 10k the depreciation for the 1st year,
then you can claim depreciation for each following year.

[mazdamadmum]

Ring the tax office and talk to them. They'll steer you in the right direction.

I'm an accountant too and it's all too hard atm to think about but the last explanation sounds more like it. But anyway ring them and they'll tell you what you can and can't do. Also get names, reference no etc when you're talking to them so that if you rely on their advice and something happens you can quote name, time, date and reference number.

[Dark Authority]

hmm.. my gf's uncle just purchased a brand new $75K C200... with advise form the accountant.. soo..**shrugs

[Palo Verde]

honestly, do u need a c200 for work related task? (bet you a suzuki alto 1 litre will do the job nicely, they have pink ones too)

Does her majesty need to be picked up every day ?

What a rort of the generous tax system, in saying that, my friend in honolulu absolutely needs a 5 series brand new BMW for his business, but I helped him carry his stock in a Mazda 3 and it worked just as fine.

[Dark Authority]

WHy not? If someone can afford it.. who cares.

ANother friend put an E55 AMG under the business name last year

Also, ur paying X amount of tax to the govt.. instead of that money going to the govt, claim it on cars.. property.. etc etc.
Kinda like the beauty of small business