When trading in an old car to purchase a new one, it’s crucial to understand the tax implications. Here’s a comprehensive guide for small business owners considering non-fuel efficient, fuel-efficient, and electric vehicles, including options like utes with specific towing capacities.
Tax Implications Overview
Below is a table summarizing the key differences in tax implications for trading in an old car to purchase a new vehicle valued at $70,000, $90,000, and $120,000.
| Vehicle Type | Vehicle Value | LCT Payable | GST Claimable | Depreciation Limit | FBT Payable |
|---|---|---|---|---|---|
| Non-Fuel Efficient | $70,000 | No | $6,191 | $68,108 | Yes |
| Non-Fuel Efficient | $90,000 | $3,915 | $6,191 | $68,108 | Yes |
| Non-Fuel Efficient | $120,000 | $15,307 | $6,191 | $68,108 | Yes |
| Fuel-Efficient/Electric | $70,000 | No | $6,191 | $68,108 | No (Electric) |
| Fuel-Efficient/Electric | $90,000 | $201.18 | $6,191 | $68,108 | No (Electric) |
| Fuel-Efficient/Electric | $120,000 | $9,059 | $6,191 | $68,108 | No (Electric) |
Key Considerations
- Luxury Car Tax (LCT) Payable: Calculated as 33% on the amount exceeding the LCT threshold. For non-fuel efficient vehicles, the threshold is $68,740. For fuel-efficient/electric vehicles, it’s $89,332.
- GST Claimable: The maximum GST credit claimable is $6,191 (1/11th of the car cost limit of $68,108).
- Depreciation Limit: Only the amount up to the car cost limit of $68,108 can be depreciated.
- FBT Payable: Electric cars provided for private use are exempt from FBT if they meet specific criteria, such as being a zero or low emissions vehicle first held and used on or after 1 July 2022 and not subject to LCT.
Considering Utes and Towing Capacity
Utes and vehicles with specific towing capacities can also be a strategic choice for businesses. If used primarily for business purposes, certain utes and vehicles designed to carry a load of more than one tonne or more than eight passengers can be exempt from FBT. This can be particularly beneficial for businesses requiring vehicles for transportation of goods, tools, or work crews.
The taxable value of private use of eligible vehicles is reduced if the vehicle is used for business purposes and satisfies the conditions for FBT exemptions. For more details, visit the ATO guide on eligible vehicle exemptions.
Additional Considerations
For those considering various vehicle options, it’s advisable to review not only the upfront costs but also potential maintenance expenses and long-term reliability. Ensuring the chosen vehicle meets your business needs, such as towing capacity and load requirements, is essential.
For detailed calculations and to ensure compliance, consulting with a tax professional is highly recommended. For more information, refer to the ATO’s guide on purchasing a motor vehicle and the QuickBooks guide on Luxury Car Tax.
