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Leasing a ute and the $20,000 for small business.

Discussion in 'Accounting & Tax' started by Brian84, 5th Jan, 2016.

  1. Brian84

    Brian84 Well-Known Member

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    Hi everyone,

    I am looking to lease a new ute through my business this year and I was wondering if I can still get the government $20k tax rebate for small businesses.

    The new ute is $50k and I will trade in my hilux for $15k which will bring it down to $35k and then I will have a balloon at the end of the lease of $15k so that will make the total $20k.

    Will this work or will they classify the purchase as $50k? Even if the purchase amount is $50k can you still claim upto the $20k threshold or if you go over the $20k then you miss out.

    I understand it is claiming the depreciation on $20k straight away instead of over 5 years.
     
  2. Tonibell

    Tonibell Well-Known Member

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    The party purchasing the ute to lease it out to you could claim the accelerated depreciation - but you cannot.

    If eligible you can claim your lease payments made during the year.
     
  3. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    I thought you had to own it so that would be a no.
     
  4. Brian84

    Brian84 Well-Known Member

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    Would it be better for me to purchase it instead of lease. Which would be more tax effective and benefit me the most.
     
  5. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Well firstly you can't trade in for a lease. The lease will always be on a $50k vehicle/debt.
    You really need to consult your accountant but the best scenario maybe purchasing a second hand ute for $19,990 in the business name and being able to use that if your company meets the requirements for the $20k instant depreciation write off.
     
  6. Brian84

    Brian84 Well-Known Member

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    What about if I traded the ute for 15k and got a balloon at the end of a personal loan of 15k so then I would have a loan of $20k. What would be the tax deductions on this scenario. Would it be tax deductible on the 50k or the 20k loan
     
  7. wogitalia

    wogitalia Well-Known Member

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    I think you're confusing the terms lease with financing the purchase, you wouldn't make a trade in on a lease because you never own the vehicle that you lease.

    If you're financing the purchase, which is what it sounds like you're doing, then you will not be eligible for the immediate write off because the asset you're purchasing is worth $50k and thus well above the threshold. The trade in has no impact and does not reduce the value of the new asset, it's fundamentally the same thing as receiving cash for the car and then using that. The balloon payment also has no impact on the value of the asset.

    If you buy a 50k car it will be eligible for 12.5k in depreciation under normal depreciation rules (reduces if owned for only part of the year) or 7.5k under the SBE regime (regardless of purchase date).

    You need to talk to your accountant though as you can do specifics, more than likely he knows someone who can broker a better deal on the finance as well.

    You can ignore all of this from the 2nd paragraph if it is in fact a lease, which is very rare in small businesses.
     
  8. Brian84

    Brian84 Well-Known Member

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    Thanks for the clarification that makes sense now. It is only a small business so you don't think it is worth leasing.
     
  9. wogitalia

    wogitalia Well-Known Member

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    It's not that it's not worth doing in small business it's just incredibly rare, I can't recall seeing a MV lease for a small/medium sized business in the past 5 years. The fact is that it's so easy to finance vehicles in Australia that the vast majority are purchased instead of leased. Why lease it when you can own it for roughly the same cash flow impact and generally end up with as much or more deductions anyway?

    Plus you get the immediate benefit of getting the GST back if you purchase and you're registered for GST which you don't get on a lease obviously and this is a massive benefit to small businesses who are generally very cash flow driven in their decisions.

    Again, talk to your accountant, it doesn't seem that you genuinely understand the difference between a lease and financing at this point which is a pretty good indicator you shouldn't be entering any financial contract without someone there who fully understands it to assist you.
     
    Terry_w and Brian84 like this.
  10. Brian84

    Brian84 Well-Known Member

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    Thanks for the advice. I won't be doing anything before I see my broker or accountant. I was just curious. I know that at the end of a lease you have to give the ute back as opposed to keeping the ute at the end of a loan. I just didn't know which would benefit me more and also about the $20k depreciation write off.
     
  11. jrc

    jrc Well-Known Member

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    The new ute costs $50,000. The cost isn't decreased by the amount of a trade in.
    An example is:
    The $20,000 trap
     
  12. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    Wog the rules for claiming input tax credits upfront changed in 2012.

    For hire purchase agreements entered into on or after 1 July 2012, you may claim input tax credits upfront instead of waiting until each instalment is paid, in the same way as you would if you accounted for GST on a non-cash basis. Up to luxury car tax limit.

    Chattel mortgages can also claim the GST upfront up to luxury car tax limit.

    Finance leases different.

    Could be many reasons someone wants to lease them. Cashflow being one of them. Just had a client purchase 6 new utes through their business and found a fantastic development site which will yield about 35% ROI. Easier for them to get financing on the cars and then with a decent deposit funding for the land acquisition.
     
    Last edited: 6th Jan, 2016