Small Business Motor Vehicle Tax Write Off

The Government will provide Australian small businesses with an instant tax write-off of the first $5,000 of any motor vehicle purchased from 2012/13. For example, a tradesman on a 30% marginal tax rate, buying a new $33,960 ute would receive an extra tax benefit of $1,275 in the year he purchases the vehicle. The remainder of the purchase value can be transferred into the general small business depreciation pool, which is depreciated at 15% in the first year and 30% in later years.

These reforms will be available to all small businesses, including sole traders and businesses operating through trusts, partnerships and companies. This new small business instant write-off will effectively replace the Entrepreneurs Tax Offset (ETO), which will be abolished with effect from the 2012/13 income year.

Statutory Formula Reforms for Car Fringe Benefits

Over the next four years, the existing statutory fractions ranging from 7% to 26% applied when working out the taxable value of a car fringe benefit using the ‘statutory formula’ method will be phased out and replaced by a flat rate of 20%.

Under the ‘statutory formula’ method, the taxable value of a car fringe benefit depends on the relevant statutory fraction applied to the cost of the car. Currently, this statutory fraction decreases as the distance travelled by the vehicle increases. The new flat rate of 20% will apply regardless of the distance travelled during the year. The 20% flat rate will only apply to new vehicle contracts entered into after 7:30 pm (AEST) on 10 May 2011, and will be phased in over four years as shown in the table below.

Distance travelled during
the FBT year
(1 April - 31 March)

From 10 May 2011

From 1 April 2012

From 1 April 2013

From 1 April 2014

0 - 15,000 km

0.20 0.20 0.20 0.20

15,000 - 25,000 km

0.20 0.20 0.20 0.20
25,000 - 40,000 km 0.14 0.17 0.20 0.20
More than 40,000 km 0.10 0.13 0.17 0.20

IMPORTANT DISCLAIMER: This article is published as a guide to clients and for their private information. This article does not constitute advice. Clients should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of these areas.