Investment Allowance – How Does it Apply to Cars

For small business operators interested in buying new cars, the new investment allowance will be of interest to you.

Some key points with the rules as they apply to cars you need to keep in mind.

The car must be a new car (not second hand).  A “demonstrator” at the car yard may still qualify as new for this purpose, provided is has only been used for limited testing and trialing.

The car can be financed, but only a finance type that allows the taxpayer to have ownership.  Loan and chattel mortgage are fine, but leasing is out for the allowance.

Where you run your business as a sole trader or in a partnership and claim deductions under the log book method, the 1/3rd of operating costs method or the 12% of cost method, you will still get the full investment allowance on the purchase of the car. In other words, there is no adjustment for private use of the car on this deduction.  For those using cents per kilometre method, the allowance won’t be available.

Where you are looking to acquire a luxury vehicle, the investment allowance will be capped up to the depreciation cost limit.  Currently that limit is $57,180 for the 30 June 2009 tax year. Still, recognise that if the new car exceeds this cost limit, you would still be receiving an extra tax deduction equivalent to $28,590


Remember if you want the tax deduction for the investment allowance for the 30 June 2009 tax year, you need to take ownership of the new car (ie have it delivered to you) by 30 June 2009.

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