Tax Claims Exceeding the Car Depreciation Limit

To encourage business investment, the instant asset write-off was recently increased to $150,000. However, in relation to cars – being vehicles that are designed to carry a load of less than one tonne and fewer than nine passengers – the depreciation is generally capped at the car limit. This is currently $59,136 (2020-21). The $150,000 write-off is only available for vehicles which do not meet the definition of a car. 

The question then arises, where the car limit has been exceeded for depreciation purposes, does this mean that the $59,136 cannot be claimed upfront (in the year that the car is first used or installed ready for use) and that it must either be:

  • Pooled under the small business rules, or
  • depreciated under the Uniform Capital Allowances rules (for non-small business taxpayers)?

The answer is that, although the cost of a car may exceed the car depreciation limit, the $59,136 can be claimed upfront. Also, be aware that the depreciation claim for cars that exceed the car limit may be less than the car limit. That is, the depreciation deduction allowed is the lower of the car limit ($59,136) or the value of the motor vehicle less GST claimed as per the following table:

GST inclusive cost of vehicle$50,000$60,000$90,000
GST claimable$4,545 (1/11th of purchase price)$5,376 (1/11th of the cost limit)$5,376 (1/11th of the cost limit)
(100% of the GST-exclusive cost)
(lower of the cost limit ($59,136) and the gross price of the vehicle, less GST claimable ($54,624)
(lower of the cost limit ($59,136) and the gross price of the vehicle, less GST claimable ($84,624)
ExcessNo excess – total cost of car can be claimed GST capped at the cost limit, but the excess is claimed as depreciationThere is a $25,488 excess amount that can not be claimed

The takeaway is that, as per above, as the cost of a car increases, the GST and depreciation claims are capped – resulting in a greater amount of expenditure that cannot be claimed back on tax.

For more information please contact us on 07 3821 4401 or [email protected].

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