A common tax deduction for most businesses is motor vehicles. The sections of tax law relating to motor vehicles are some of the most complex. There are at least four different methods that can be used to claim motor vehicle expenses, and each method has its own rules.
Q. I am a self-employed contractor and use my car for business, as well as private purposes. I am looking at buying a RAV4 - probably a 2010 model - for approximately $23,000 and was wondering if I need to know of any tax implications or if there are any claims I can make on purchase etc? Some people have even suggested I rent a car for a certain number of years. I'm not entirely sure what they mean by this though?
A. As you will be buying a passenger vehicle rather than a commercial vehicle you will need to maintain a log book for 12 weeks to maximise the amount you can claim as a tax deduction. The log book will establish a percentage for business use. You can claim this percentage of all of the costs of the car.
The types of costs include fuel, registration, insurance and repairs. The cost of the vehicle can also be claimed depending on how you finance the purchase. The renting that people have been talking about might refer to a method of finance called hire purchase.
Where you pay for the vehicle with cash or use hire purchase the $23,000 cost will be claimed in two stages. Small businesses buying vehicles from July 1 this year can claim a tax deduction for the first $5000 in the year the vehicle is purchased. The balance of the $23,000 cost can be claimed as depreciation over a number of years.
If you instead use a lease to finance the purchase you can claim a tax deduction for the lease costs you pay each year. Unfortunately under this method you will not be able to claim the upfront $5000 deduction.
Q. I bought a used Toyota Prado for my business on December 1, 2011 for $34,000. Can you please provide the prime tax rate to be applied and are there any other allowances I can claim such as investment allowance?
A. The investment allowance applied to new assets purchased up to December 31, 2009. This means as the Prado was used, and purchased after the cut-off date; you are not eligible to claim the investment allowance. You will also not be eligible for the new $5000 tax deduction as this only applies to vehicles purchased after July 1 this year.
By prime tax rate I believe you are referring to the depreciation rates that can be used to claim the cost of a vehicle. A claim could be made for depreciation if you either used the one third of running costs method or the log book method. If this is the case you can claim 15 per cent of the cost of the vehicle in the first year and 30 per cent of its reducing value each year after that.
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