Depreciation is the natural wear and tear of property and assets over time. While almost everything depreciates, only owners of income-producing properties and businesses can claim depreciation as a tax deduction.
These deductions can be claimed as either capital works or plant and equipment. A motor vehicle is classed as a plant and equipment asset and depreciates based on its effective life.
The simplified depreciation rules apply to most depreciating assets.
These are assets that have a limited life expectancy (effective life) and can reasonably be expected to decline in value (depreciate) over the time they are used.
Depreciating Assets Include:
- Tools and equipment (for example, electric sanders and saws)
- Computers, laptops, and tablets
- Office furniture (freestanding)
- Office equipment (for example, coffee machines)
- Motor vehicles (for example, cars, vans, and tractors).
Car Limit
A car limit applies to the cost of passenger vehicles (except a motorcycle or similar vehicle) designed to carry a load less than one tonne and fewer than 9 passengers.
The car limit is:
- $60,733 for the 2021–22 income year.
The one tonne capacity is the maximum load your vehicle can carry, also known as the payload capacity.
REDUCE CAR DEPRECIATION
Every car will depreciate unless it’s a classic or a collector’s item. But there are ways to reduce your cars depreciation:
Choose Carefully
According to studies, Australians prefer automatic transmission vehicles to manual transmission vehicles. They also favour cars that are painted in white, black, red, or silver. Choose a vehicle that future prospective buyers are more likely to be interested in if you want a car with a slower depreciation and a high resale value
Use Carefully
It is said that a car that follows the average rate of depreciation will lose up to 50-ish percent after you’ve owned it for three years, which is quite substantial.
It’s just as crucial to keep the car in good shape as it is to buy the correct car. A vehicle’s depreciation will be slower if it receives fewer knocks and damages.
Consider a Nearly New or Demo Used Car
Buy a second-hand car that has already seen its initial substantial value decrease to reduce depreciation. For example, a vehicle that has been driven for three years or fewer has seen a significant reduction in value. Purchasing such a vehicle saves money on the purchase price while preserving most of its worth for three to four years. You can sell the car without losing a lot of money due to depreciation if you’ve kept it in good shape.
Regular Cleaning & Maintenance
Maintaining a car’s cleanliness and adequate maintenance reduces its rate of depreciation and preserves its market resale value. It serves the very beneficial goal of making the car more appealing to potential buyers. Maintenance and servicing on a regular basis reduces wear on the engine, tyres, and other components.
Minimise Kilometres
The more kilometres a vehicle travels, the more it depreciates. Avoid frequent long-distance excursions if you want to keep your car’s market worth. The average annual mileage for a car, according to the Australian Bureau of statistics is 12,100 KLM per vehicle. Going above and above this figure could be detrimental to the value of the car,
Timing is utterly important
Don’t overlook the significance of selecting the best time to buy. For example, purchasing a vehicle near the end of the calendar year or before the arrival of the new model can increase your ability to negotiate on the asking price. Because dealers may want to clear out older stock models to make room for newer ones, you can take advantage of this.
Car Maintenance
Another thing to think about is collecting the receipts that show you’ve kept your car in good working order over the years. This will offer as tangible proof that you have taken good care of your vehicle, increasing the likelihood that a future buyer will trust you. This will also allow you to demand a higher price for the car because it has been well-maintained, and you have proof.
Repairing minor damages to a car, such as minor scratches and small dents, is particularly important because it will help you increase the worth of the vehicle.
Key points
- Motor vehicles used for income-producing purposes can be depreciated using either the simplified or general depreciation rules
- When a vehicle is used for both business and private use all deductions must be apportioned
- Some vehicles may be eligible for temporary full expensing.
Are there any other costs I can claim?
If there is anything you want to claim that you are unsure about or that is not listed in the Depreciation and capital expenses and allowances, you should ask your accountant or get a private ruling from the ATO.
Disclaimer: The information contained in this article is general in nature and does not consider your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice.
