Stop! If you’re thinking of buying a big-ticket business asset so you can claim it against your final tax bill, it might not save you as much as you might like.
That’s because of the way expensive assets are claimed. You’ve got to consider a few things first – like how assets are depreciated, the way tax deductions work, and the fact you can only claim business usage for any business expense.
Taken together, these three factors put a serious dent in how much you’re set to save. Don’t worry, we’ll walk you through it all.
1. Expensive assets have to be depreciated
Firstly, if you buy any asset that’s over $1,000 in value, it has to be depreciated. You don’t actually claim the value of the asset, but instead you claim the depreciation.
What does that mean? Well, depreciation is the value that your asset loses over time. For example, if you buy a brand spanking new car for $50,000 last financial year, it’s now worth less because it’s a few years old and got some kilometres on the odometer. Say, $40,000.
The depreciation value is the difference between the original price and what it’s now worth: $10,000. This is what you’d claim as a tax deduction.
💡 Note: while you can’t claim the full value of your car in that first year, you will claim the full amount over time. For more information, check out our explainer on depreciation.
2. Tax deductions aren’t straight refunds
Next up, when you claim a tax deduction, it’s not really a refund for the amount you spend.
Instead, the amount you claim lowers your taxable income – as in, reduces the amount of income on which you’re taxed.
So, minus that $10,000 worth of depreciation from your total income, and the remainder is what you’ll be taxed on for the financial year. You should save on your tax bill, but you won’t see that $10,000 directly back in your pocket.
3. You can only claim the business usage of an asset
Finally, while that $10,000 might sound like a delicious claim, you’re actually only allowed to claim the percentage that was actually used for anything business related. If you work from home and don’t drive your car for business reasons (only to pick up the kids from school and swing past McDonalds on the way home) then we’re sorry to say, you can’t claim any of that depreciation value.
All of this to say, you simply need to ensure that any big-ticket purchases you make, make sense for your business and tax purposes. Consider the depreciation, the amount with which that will reduce your taxable income, and whether or not you will actually use this asset for business purposes. Otherwise, you’re better off saving that money altogether.
If you do have some assets to claim tax on and the depreciating value stuff sounds a little intimidating, no reason to fret. Hnry (us!) can handle that side of things for you. We love taking the number stuff off peoples’ plates.
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