Luxury Car limit for Depreciation is something to consider when you purchase your next vehicle.
There is a limit on the cost you can use to work out the Luxury Car limit for Depreciation of cars and station wagons, including four-wheel drives. The maximum value you can use for calculating your claim is the car limit (irrespective of any amount you were paid for a trade-in) in the year in which you first used or leased the car.
|Financial year||Car limit||ATO reference|
|2020–21||$59,136||The indexation factor is 1.027, calculated as 377.9 divided by 368.1.|
|2019–20||$57,581||No indexation – the indexation factor is 0.987 calculated as 368.1 divided by 373.0.
(Note: annual taxation determinations for the car limit are no longer published.)
How the yearly car limit is calculated
The car limit is indexed annually in line with movements in the motor vehicle purchase sub-group of the consumer price index.
The indexation factor is calculated by dividing the sum of the index numbers for the quarters in the year ending 31 March by the same numbers for the quarters in the year ending on the previous 31 March.
The car limit amount is then indexed by multiplying it by the indexation factor, unless the indexation factor is one or less.
From 1 July 2020 the following car threshold amounts apply.
- There’s an upper limit on the cost you use to work out the depreciation for the business use of your car or station wagon (including four-wheel drives). You use the car limit that applies to the year you first use or lease the car.
- The car limit for 2020–21 is $59,136.
Goods and services tax (GST)
- Generally, if you purchase a car and the price is more than the car limit, the maximum amount of GST credit you can claim is one-eleventh of the car limit amount.
- You can’t claim a GST credit for any luxury car tax you pay when you purchase a luxury car, regardless of how much you use the car in carrying on your business.
Luxury car tax (LCT)
- From 1 July 2020 the LCT threshold will increase to $ $68,740.
- The LCT threshold for fuel efficient cars will increase to $77,565 for the 2020–21 financial year.
- Remember, the LCT value of a car generally includes, the value of any parts, accessories or attachments supplied or imported at the same time as the car.
The luxury car limit
Before you rush out to buy a new car, particularly one over the current write-off threshold, be aware of the ceiling value applied to higher-value vehicles. For example, if the luxury car limit is set at $57,581 for the financial year and you buy a Ferrari F12 for a cool $1 million for the daily drive to the post office, you’ll only be able to claim around one-twentieth of its cost against your taxable income.
This doesn’t include the luxury car tax that you’ll also be required to pay. Click here for further details on the Luxury Car Tax.
Our team at Gerard Wilkes & Associates are here to help. If you have any questions regarding this article, or would like to discuss your taxation matters further, please contact us at https://www.wilkes.com.au/contact-us/ or call our office 07 5532 1733.