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My husband is self employed and looking at buying a new vehicle for work. Our accountant was saying that if he pays less than $20k for the van it will lower his taxable income. Didn't quite understand what he meant. Can you please explain or clarify a bit more so we can make an informed decision moving forward? Thanks for your time. Sarah
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Hi Sarah,
Under the current ATO rules you get an immediate 100% tax deduction for equipment purchased that is less than $20k. If it is more than $20k you need to depreciate the asset over its useful life
Hope that makes sense
Kind regards,
David.
Hi Sarah,
I’m not an accountant but what I believe he is referring to is the instant write off for business assets under $20,000. This means that rather than having to depreciate a car over 4 or 5 years you can deduct the full cost in the first year, reducing your taxable income by that amount. It must meet all of the ATO conditions but if he needs the Van and he can get one for under $20,000 it should work.
Definitely confirm all of the details with your accountant before making the purchase
Cheers
Scott
Soo he will get 100% tax deduction as well as reduce his taxable income for the year. And if he's making quarterly PAYG instalments will that reduce the amount he has to pay as well or do we have to wait until end of financial year and possibly get a refund because we've paid more.
Hi Sarah,
The tax reduction IS the lowering of his taxable income. Under the current rule, the asset cost is able to be claimed as an expense of the business in the year it is bought when it is a qualifying asset costing less than $20,000
It is possible for the accountant to make a tax variation for the amount of tax that will be reduced so that you don’t have to wait until the end of the year.
Cheers
G'Day Sarah.
1: the new van will be tax deductible if it costs less than $20k. This will reduce the taxable income by $20k. the tax saving will depend on your husbands actual income, but lets assume he makes profit of $100k AFTER claiming $20k for the new van. His marginal tax rate is going to be 39%, so the tax saving on the purchase of the van is going to be $7800 (ie 39% of $20k)
2. IF you ESTIMATE that his income is going to be lower than the previous year, AND the PAYG Instalments he has already made will result in a refund at tax time, then go ahead and vary the PAYG Instalment. It is after all your money:)
BUT............................
If you get the varied instalment amount wrong, and your husband ends up with a tax bill at tax time, then he will get slugged with interest on the outstanding amount.
Your accountant should be able to explain this to you without resorting to "accountantese" that makes it sound like gibberish. If he cannot explain it to you then I suspect he doesnt understand it himself, and you need to find a new accountant:)
hope this helps
BC
Thank you David
Does that mean he can vary his PAYG quarterly instalment amount because the cost of the van reduces his taxable income or just pay the instalment and maybe get a refund at EOFY?