Car Depreciation Rules for a Sole Trader - ATO

Countryboyperth on 26/06/2020 - 12:55

Hi everyone,

I am a full time employee and also a sole trader. I earn say 65% of my income being an employee and 35% as a sole trader. I have the ABN and registered for GST.

My income split for calculation purpose is say $60k as an employee and $30k as a sole trader.

I want to buy a new car and before doing that would like to understand how a depreciation or instant write off rules work. I don't use my car for trade but just for commuting to work from residence as a sole trader. I will be carrying hand tools of trade in the car.

My questions are

Can I claim depreciation towards a new car? I am told car can be depreciated over 8 years. Say I have bought a car for $40k. Every year I can depreciate it for $5,000. My next question - will it reduce my taxable income from combined salary of $90k or only from my sole trader income of $30k? If it is from the combined salary then I will be saving $1625 per year (being 32.5c tax saving) for 8 years. Otherwise it would be $950 per year based on sole trader income alone (tax slab for the first $37,000). Can I claim GST refund in the first year and insurance and Rego every year? The car will be solely used to commute to work and back directly from residence.

Thank you.

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Comments

  • websterp on 26/06/2020 - 13:01
    +2

    Considering you are both an employee and a business owner I'd assume you have an accountant?

    • netjock on 26/06/2020 - 13:08
      +7

      OzBargain is a lot of people's accountant, stock tips, property manager, real estate adviser, travel agent etc etc

  • [Deactivated] on 26/06/2020 - 13:53

    So car is to go from home to salary work? How is it related to the sole trader income? From the way you explain it, i cant see you claiming it.

  • Hithere on 26/06/2020 - 13:53

    And smart arse general know it alls.

    No one who's currently posting here is included - of course ;)

  • Countryboyperth on 26/06/2020 - 14:11

    Hi all,

    I did ask similar question for my cousin and now I have the same dilemma. I am here to raise the point that matters to me. While I have no control on what responses I get, I am waiting for the response from someone who is in similar circumstances. Remember I have not done anything nor claimed anything but checking if it is possible and if yes, how it works.

    • Mentallysick on 26/06/2020 - 14:57

      Answer is you can claim $0. Cannot claim at all.

  • pjetson on 26/06/2020 - 14:28
    +2

    Even a quick search of the ATO web site turns up plenty of information. However, this point seems salient:

    If a motor vehicle is used for both business and private use, you must be able to correctly identify and justify the percentage that you are claiming as business use. The percentage that is for private use isn't claimable. This is an area where we often see errors made.

    Also:

    Travelling between your home and your place of business is considered private use, unless you are a home-based business and your trip was for business purposes.

    You said "I don't use my car for trade but just for commuting to work from residence" which sounds like you have no business use, in which case it's not claimable. However, maybe you just didn't phrase your sentence correctly.

    You need to talk to your accountant.

    • CheapskateQueen on 28/06/2020 - 08:34

      yes home to work is private.

      you said you solely drive it home to work.

      you are not entitled to any deduction.

  • MrHyde on 26/06/2020 - 14:32

    Questions you need to answer.

    1) Are you going to use the car to commute to employee work or sole trader work? If employee work; what sort of the tools are you carrying - do they require a vehicle to carry them or can they be carried on your person. Based on that, the car may or may not be depreciable at all. As a general rule, just driving from home to work is not a tax deductible expense.

    2) If you are driving from home to sole trader work; is the work location your usual sole trader place of work. In that case; again just driving from home to work is not a tax deductible expense. If your usual sole trader place of work was home and you occassionally travel to customer sites; then that could be a tax deductible expense.

    3) What percentage would the car be used for work purposes? You need to account for trips to the supermarket; weekends away; etc as being non-work purposes and keep a log of travel to justify the percentage.

    Once you have all that, you can work out how much of the $40K car you can claim as a tax deduction. As a sole trader; your income is simply added to your employee income - so any tax deduction would be against your full income of $90k.

    • Countryboyperth on 26/06/2020 - 14:46

      Thanks. As mentioned before I use car as a sole trader only. I use public transport to travel to my place of employment as an employee.

      So you reckon tax deductions are not apportioned?

      • MrHyde on 26/06/2020 - 15:05
        +1

        No, tax deductions are not apportioned. For sole traders; all income is added together. You will be paying tax on $90K - not two lots of taxes as $60K and $30K. You also dont get two lots of tax free slabs.

        • pjetson on 27/06/2020 - 15:47

          You can get tax free slabs? Cool! Where do I sign up?

  • whooah1979 on 26/06/2020 - 14:38

    Do you have more than one vehicle? It is easier to claim 100% if you do.

    • Countryboyperth on 26/06/2020 - 14:44

      How this works? Can you please elaborate?

      • whooah1979 on 26/06/2020 - 14:51

        One is used for private while the other vehicles are used for business.

  • Countryboyperth on 26/06/2020 - 14:44

    I only use the car as a sole trader to travel to my workplace from my residence and back. I don't have any large tools to transport. No other use to the car as a sole trader than to drive to workplace (not owned by me) and return.

    • caramellokoala on 26/06/2020 - 15:00

      Then you get to depreciate nothing, simple.

    • MrHyde on 26/06/2020 - 15:03

      Based on that - nothing is claimable. Just driving to workplace and back is not a tax deductible expense - doesn't matter if you were sole trader or an employee.

      • pjetson on 27/06/2020 - 16:02

        I'm not sure that the OP is explaining it correctly.

        Does the OP mean that in his sole trader role, he works from home, but he has to drive to other premises and back to perform the work he does as a sole trader?

        The OP really needs to talk to an accountant who knows (or can find out) what the OP does in his sole trader role.

  • Bjingo on 26/06/2020 - 14:51

    If you want to depreciate your car you will have to apply the logbook method of determining business usage of the car. Which would entail you keep a detailed logbook of every trip you take in the car including the odometer reading before and after the trip for 12 consecutive weeks. The only way you would get your business percentage up would be if the tools you carry are bulky and require a motor vehicle to move them around, in which case trips to and from work where you would require said tools is business usage. You would then apply all the costs of running the car including depreciation to your business percentage of usage and deduct that amount.

    Here is a couple useful links

    https://www.ato.gov.au/uploadedFiles/Content/MEI/Downloads/T…

    https://www.ato.gov.au/Business/Income-and-deductions-for-bu…

    Hope this helps

  • dasher86 on 26/06/2020 - 16:16

    What did your tax accountant say when you asked them?
    I don't understand why people don't see their services as value add and costing them money. You're making $30k as a sole trader and you don't want to spend even a little of it?..
    A good accountant can get your tax affairs in order and save you money by ensuring you are claiming what you are entitled to claim.

    • Countryboyperth on 26/06/2020 - 16:37
      +1

      I have a tax accountant whom I see once in a year. I am scheduled to see him in Aug 2020. I thought I will do a bit of homework as I believe in collective knowledge.

      • pjetson on 27/06/2020 - 16:09

        I think the problem you're having here is that you are not explaining your sole trader job very well, so we can't work out whether purchasing a car would be claimable for you.

        If all you would be doing in your sole trader role would be driving from home to your place of business, then it is definitely not claimable. However, if you work from home and you would be driving from your home to other premises where you do your sole trader jobs, then driving home again, this could easily be claimable.

        Unfortunately, you've been saying things like "I don't use my car for trade" which if taken at face value, means that a car would not be claimable. I somehow get the impression that you're simply not describing what you do properly, but maybe I'm wrong.

        If your tax accountant knows exactly what you do as a sole trader, then they should be able to tell you with just a phone call whether a car would be claimable. A phone call to them shouldn't cost you much.

  • [Deactivated] on 26/06/2020 - 18:46

    If i can ask, what have you learnt thus far so we dont repeat the same things?

    • Countryboyperth on 26/06/2020 - 19:22

      I can't claim for a car expense (anything and everything) if I drive from residence to the workplace as a sole trader. If I have to carry bulky items then only I can claim and that is not in my case.

      • [Deactivated] on 26/06/2020 - 20:11

        You learn quickly padawan.

      • pjetson on 27/06/2020 - 16:15

        So you don't work from home as a sole trader? You have an office or factory or something that you work out of, and driving between your home and this other premises is the only thing that you would use this car for? You don't drive from these premises to other places to conduct business? That doesn't sound like business use to me, but then I'm not a tax accountant.

        Maybe your tax accountant can suggest some ways of structuring the purchase of a vehicle that would have some tax advantages for you.

  • Frozensage on 30/06/2020 - 09:58

    If you are a sole trader surely you need a car to do something that is related to the work? Pickup supplies, visit client, drive to site? Anything with ppl interaction you need a car. Maybe unless is trading stocks online?

    You can also try to salary sacrifice your car with your employer. Then it’s 100% tax deductible plus all of the daily expenses.

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