Small business owners have had several wins and one loss when it comes to income tax this financial year.
On the loss side the entrepreneur's tax offset ceased on July 1 last year. This offset was 25 per cent of the net income of a small business up to $50,000, which decreased gradually until no offset was allowed for net business income over $75,000.
The two wins are an increase in the value of assets that can be claimed as an immediate tax deduction from $1000 to $6500, and a new $5000 tax deduction for the purchase of business motor vehicles. Both measures apply to assets purchased from July 1, 2012.
Q. I am starting a new business which is an environmental consultancy. The business will need at least one vehicle, being a ute/four-wheel-drive for the required site works and transport of equipment. However I would also like to have a second vehicle for statewide travel and attendance at business meetings etc.
At present my wife owns a ute/4WD that she is considering selling, as it is rarely used any more. I also have a novated lease for another vehicle, which I need to transfer from my existing employer. I am considering purchasing the ute and also transferring the car to my business. Would I then be able to claim 100 per cent of the purchase and running costs for the ute and then the business percentage use for the leased vehicle?
A. Under the new small business motor vehicle rules you can claim an immediate tax deduction for the first $5000 of the purchase cost. The balance of the cost related to business use is added to the general small business pool and written off at 15 per cent in the first year and 30 per cent in later years.
For the 4WD that you are thinking of buying from your wife, if the cost was $10,000 and the private use of the ute was infrequent and incidental, it would be regarded as having 100 per cent business use. This would result in a $5000 deduction of the purchase price. The balance of $5000 could be claimed as depreciation of $750 in the first year. In addition 100 per cent of the running costs of the vehicle could be claimed.
If you purchased the car currently under the novated lease from your employer for $20,000, and a logbook proved business use of 50 per cent, you could claim a tax deduction for $5000 of the purchase cost. As only $10,000 of the cost relates to business use, after the $5000 deduction, depreciation of $750 could be claimed. In addition you could claim 50 per cent of the running costs of the vehicle.
If your logbook showed that the business use of the car was 30 per cent, you could claim the $6000 business use cost of the vehicle as an outright deduction, under the increased limit for outright deduction of assets, and then also claim 30 per cent of the running costs of the vehicle. If you financed the purchase of the vehicle with a loan you can claim 100 per cent of the interest charged.
Questions on small business tax or other issues can be emailed to firstname.lastname@example.org.