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Monthly tax tip:
The Federal Budget for 2023 also announced the new Small Business Instant Asset Write-off which is now capped at $20,000 per eligible asset. This may affect business taxpayers that are going to be selling and replacing a business asset. For example, if a business has fully deducted a motor vehicle in a previous year and then decides to trade it in for an upgraded vehicle during this income year, there is going to be an unexpected tax liability. The trade (sale) of the vehicle would need to be included as taxable income and then the replacement vehicle could not be fully deducted if it is valued at over $20,000. If we assume that the old vehicle was sold/traded for $50,000 and the new vehicle is valued at $60,000, we will calculate the increase of taxable income below (this is just an estimate, every taxpayer will be different due to different tax rates and capital gains offsets available to them):
- $50,000 taxable income (selling the old vehicle)
- $5,000 – $10,000 depreciation expense for new vehicle (depending on purchase date and depreciation method)
- Total of $40,000 – $45,000 increase in taxable income
- Between $10,000 – $11,250 extra income tax liability if the business is operating as a company
This is something to be aware of and consider if selling and replacing a business asset that was previously fully deducted. If this is something that you are considering, then please contact our office to discuss the potential tax liability.
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