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2020 Immediate write off on Small Business additons to luxury car

Newbie

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Small business has purchased a vehicle in 2020 year that exceeds luxury car depreciation limit.  We have claimed 100% of the cost up to the luxury car limit as a tax deduction.

Within a few weeks the business then upgraded wheels and exhaust on the vehicle.  Are these upgrades an immediate tax deduction as well or is the total added to the original cost of the car and the total deduction cap is the luxury car depreciation limit.

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Most helpful response

ATO Community Support

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** Edited by moderator to reflect accurate information **

 

Hi @Travel,

 

When an asset is already held then the amounts spent on improvements made would be a second element of the cost under uniform capital allowance rules.

 

When applying the simplified depreciation rules to the improvements you won’t be able to write these costs off immediately because you claimed the write off limit with the asset. They need to be placed in the small business pool.

 

See our website about Improvements to assets under Simplified depreciation for small business.

 

5 REPLIES 5

Most helpful response

ATO Community Support

Replies 4

** Edited by moderator to reflect accurate information **

 

Hi @Travel,

 

When an asset is already held then the amounts spent on improvements made would be a second element of the cost under uniform capital allowance rules.

 

When applying the simplified depreciation rules to the improvements you won’t be able to write these costs off immediately because you claimed the write off limit with the asset. They need to be placed in the small business pool.

 

See our website about Improvements to assets under Simplified depreciation for small business.

 

Newbie

Replies 3

Thanks for that - however - if the additions to the vehicle were after the purchase of the vehicle - not at the time of purchase, and the vehicle at the time of purchase was not dependant upon the additions for it to work properly- are the additions part of the  second element of cost - which are then  depreciable in their own right, and not part of the luxury depreciation limit which applies to the original purchase?

Former Community Support

Replies 2

Hi @Travel,

 

We've updated our inititial response to reflect accurate information.

Newbie

Replies 1

Hi Josh 

 

I had a look at the link to the  Improvements to assets under Simplified depreciation for small business.

 

There are two paragraphs - one following on from the other that seem to contradict themselves.  Are you able to shed more light on these for me please.  They are extracted as follows:

 

If you improve an asset that has been written-off under the instant asset write-off rules and the improvement cost is below the instant asset write-off threshold, the improvement cost is also written off. This is limited to the business use proportion of the asset.

 

The cost of any subsequent improvements can't be immediately deducted – instead they are placed into the small business pool.

 

thanks for your help!

Former Community Support

Replies 0

Hi again @Travel,

Sure, happy to clarify.

 

The first paragraph means you can treat the improvement costs the same way the asset was treated and claim an immediate deduction provided the cost is under the threshold. If the asset is used for business and personal you can only claim the business use. For example if the car is used 60% business and 40% other, then you need to apportion the improvement costs and write off the business use portion only.

 

Any improvements made thereafter can't be treated the same and will need to be depreciated in the small business pool.

 

Going back to your situation and I apologise that your inquiry was misread.

 

Based on the above, you can claim an immediate deduction for the improvement costs made to the car if they're under the write off threshold. this is because the car was written off. Any subsequent improvements made to the car will need to be allocated to the small business pool.