Is it Worth Delaying a Proposed Purchase to get the Bonus?

The proposed $5,000 budget bonus depreciation available for new and used cars for Small Business Entities (SBE's) is available for/from the 2013 financial year. The bonus is purely a timing adjustment and brings forward an additional $5,000 deduction into the year of purchase. As it is purely a timing adjustment, the benefit evens out over the life of the asset.

So if you are planning to buy a car in the near future, should you buy it in FY2012 (on or before 30 June 2012) or in FY2013 (from 1 July 2012)?

The answer is simple, and is just a matter of doing the maths!

Consider our client Fred, who is about to buy a car for $50,000 (GST exclusive).

                                                                       

 

If Bought 30/6/2012

Cumulative Deductions

If Bought 1/7/2012

Cumulative Deductions

Cost

50,000

50,000

Depreciation - 2012

1

7,500

7,500

-

-

WDV - 2012

42,500

50,000

Bonus Deduction

-

7,500

3

5,000

5,000

Depreciation - 2013

2

12,750

20,250

1

7,500

12,500

WDV - 2013

29,750

37,500

Depreciation - 2014

2

8,925

29,175

2

11,250

23,750

WDV - 2014

20,825

26,250

Note 1: SBE Depreciation in year of purchase is 15% of Cost.

Note 2: SBE Depreciation in subsequent year is 30% of written down value (WDV).

Note 3: $5,000 Bonus Depreciation Deduction.

As you can see from the cumulative deductions claimed, at that value of purchase, Fred is better off ignoring the lure of the $5,000 bonus, and so we would advise him to buy in the current or 2012 financial year.

Please note that as the value of the car purchased gets smaller, so too does the value advantage identified above. The decrease in value actually approached a breakeven point at a GST exclusive value of approximately $19,600.

As the majority of business vehicles will exceed this $19,600 value, a purchase in FY2012 would provide the best outcome for most small business entities.

For specific tax advice to suit your circumstances, call Paul on (07) 5573 7055.