Vehicle Trade-Ins – A Taxing Time

The Federal Government during COVID provided businesses with generous tax concessions for the purchase of equipment and vehicles used for business purposes.  The effect of these measures (known as either the instant asset write-off or temporary full expensing) was that the business would receive a deduction in the year of acquisition for the entire cost for vehicles or equipment installed and used in their business.

During this time we saw a number of businesses avail themselves of these concessions and significantly reduce the tax they would have otherwise paid.  The instant asset write-off concessions have now been scaled back to assets costing less than $20,000 and only apply to businesses with an aggregated turnover of less than $10 million.

The impact for business owners now considering a trade-in of assets acquired under these concessions are as follows:

  1. The amount received by a GST registered business for a trade-in is considered a sale and subject to GST;
  2. The GST exclusive amount received for the trade-in will be an assessable amount to be included in the income of the business;
  3. The new asset purchased will often not qualify the instant asset wite-off but will most likely qualify for a depreciation claim.

What this will mean in some cases for business owners is that the impact of the trade-in of a business vehicle or asset will result in an amount being assessable to the business.  This is because part of the benefit of the deduction claimed under the old instant asset write-off rules is recovered without a corresponding write-off for the new asset.

Prior to considering a trade-in we recommend that business owners are aware and understand the tax consequences of these transactions.  Should you require assistance in this are please contact us on (07) 3910 5675 or [email protected].

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