Considering buying a new car? Not sure if you should get a car loan instead of a novated lease? What is this cost limit of $57,466 about? Its important to understand the taxation consequences and know what deductions your entitled to.
The cost limit relating to motor vehicles ($57,466) only affects the amount that can be claimed as a tax deduction for the write-off of the cost of the vehicle (i.e. depreciation). This depreciation cost limit has no effect on whether a tax deduction can be claimed.
There are effectively four methods that can be used to claim a tax deduction for a motor vehicle that is used either for business purposes or in earning employment income
Under the first of these three kilometre methods the tax-deductible amount is calculated by multiplying the number of business kilometres driven in a year, up to a maximum of 5000 kilometres, by a cents per kilometre rate based on the engine size of the vehicle used. This rate for the 2014 year ranges from 63 cents up to 75 cents
Where the business travel is 5000 kilometres or more a claim can either be made for one third of all running costs including depreciation of the vehicle, or a tax deduction can be claimed for 12 per cent of the cost of the vehicle. The claim for depreciation under the one third of running costs method, and the claim for 12 per cent of the cost of the vehicle, is limited to the depreciation cost limit of $57,466.
The other method that can be used to claim car expenses requires a log book to be kept for a period of 12 weeks. After completing the logbook a business use percentage is arrived at that can be used to claim that percentage of the operating costs of the motor vehicle including depreciation. The cost limit again applies to the claim for depreciation. This depreciation cost limit does not include GST.
Taxpayers are able to use whichever of the four methods provides them with the greatest tax deduction. If you use a car loan to finance the purchase of the vehicle the depreciation cost limit will apply. If a lease is used a tax deduction is allowed for the lease payments and the depreciation cost limit only applies to the finance company.
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