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Car depreciation - recalculate effective life

Enthusiast

Views 5581

Replies 9

Hello there,

 

I have a question about business car depreciation. 

 

I bought new car on 1/4/2015 for $33,000 (GST inclusive) for personal use.

I started to work for Uber since 1/7/2018.

So there are 1187 days from 1/4/2015 to 1/7/2018

First calculate the net amount without GST

33000-3000=30000

Then I used the Prime Cost Method to calculate the opening adjusted value as of 1/7/2018.

30,000-30,000*(1187/365)*(100%/8 years)=17,805

Am I doing right? 

If it is right, I have another question how to calculate the depreciation for period 1/7/2018 to 30/6/2019 as I don’t think I can use 8 years life cycle (car for private use) anymore due to the change of circumstance.

I can't work this out using the online calculator as it doesn't allow to enter a date "1/7/2018" of effective life change. It only allows to enter income Year to apply from. 

Also, I don't think I can just change the effective life from 8 years to 4 years (car for Taxi) for remaining depreciations as 4 years should apply to a new car while my car has been depreciated for 1187 days already.

 

I am looking forward to advices from ATO community.

 

Thanks

 

 

 

1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

Enthusiast

Replies 0

Thanks heaps macfanboy!

 

Yes, I think it will more sense to use self-assess effective life because:

 

In the first 3 years the car was only used for private trips with less kilometers travalled (approx. 10,000-12,000 kms per year)

 

But since I started Rideshare business, it becomes to 3,000-4,000 kms per month and certainly the car will lose value fastly.

 

Also, a good news is that I found the ATO Depreciation and capital allowances tool does allow to enter a "recalculated effetcive life year", which allows me to use 8 years as the effective life for the first 3 years and use 5 years for remaining years untill it is fully depreciated. After doing that the ATO tool produced the depreciation schedule as same as what I manually calculated in Excel. (previously I had question because I was not sure if the Year entered was financial year, or calendar year, now I can confirm it is financial year)

 

The Opening adjustable value as of 01/07/2018 will still be $17,805

2018-2019  $30,000 x (365/365) x (100%/5) x 75% = $4,500

2019-2020  $30,000 x (366/365) x (100%/5) x 75% = $4,512

2020-2021  $17,805-$4,500-$4,512=$4,341

 

I think this issue has completed resolved now but (ATO Community) please do correct me if anything wrong.

 

Appreciated your kindly help!

 

9 REPLIES 9

Taxicorn

Replies 8

Yes you are correct.

 

When you enter the car into a depreciation schedule, record the date purchsed and it should figure out that you only have 4 years left.

 

Also note you can not claim GST on depreciation. It is fully claimed once purchased (if regisitered for GST).

You do claim for depreciation in your Tax Return (minus GST).

 

However there will be GST consequences when you sell/trade it in.

 

You should also keep a log book. Logbooks should be kept for at least 12 typical working weeks. You can keep it for longer, but remember to apportion it for time off.

Enthusiast

Replies 7

Hi Macfanboy,

 

Thank you so much for your help. 

 

Yes, 30K is the value GST exclusive. 

 

Please note there was a change of effective life years due to the main usage changed from personal to business from 1/7/2018. 

 

Therefore, my calculation will be:

 

Bought new car on 1/4/2015 for $30,000 (GST exclusive) for personal use.

Started to work for Uber since 1/7/2018.

So there are 1187 days from 1/4/2015 to 1/7/2018

 

Used the Prime Cost Method to calculate the opening adjusted value as of 1/7/2018.

30,000-30,000*(1187/365)*(100%/8 years)=17,805

 

The business portion is 75% (logbook method)

 

The depreciation for FY18 will be:

=30000*(365/365)*(100%/4 years)*75%=6,000

 

The depreciation for FY19 will be:

=30000*(366/365)*(100%/4 years)*75%=6,016

 

The depreciation for FY20 will be:

=(17,805-6,000-6,016)*75%=2,227

 

Am I doing right? Please kindly correct me if anything wrong.

 

Thanks once again

 

 

 

Taxicorn

Replies 6

The Opening adjustable value as of 01/07/2018 will be $17,805 <----- Correct.

 

However depreciation is continued using 200%/8 years until 30/06/2023

 

2019  $30,000 x (365/365) x (100%/8) x 75% = $2,813

2020  $30,000 x (366/365) x (100%/8) x 75% = $2,820

2021  $30,000 x (365/365) x (100%/8) x 75% = $2,813

2022  $30,000 x (365/365) x (100%/8) x 75% = $2,813

2023  $30,000 x (274/365) x (100%/8) x 75% = $2,111

 

 

 

Enthusiast

Replies 5

Thanks macfanboy!

 

But that is something I don't understand and I wish to discuss.

 

Now this car has been heavily used for business/rideshare so its value will decline repidly than anytime before. I think it makes sense to use 8 years as effective life before starting the business but not it should be 4 years?

 

I realised that with the depreciation and capital allowance tool:

https://www.ato.gov.au/Calculators-and-tools/Depreciation-and-capital-allowances-tool/

It has an option allow you to change the Effective Life Years due to circumstance change. I think I should use this option but the problem is that it doesn't allow you to enter a date (e.g. 1/7/2018) of the circumstance change but to enter a year, which makes a different calculation result. 

 

What do you think?

 

Thanks once again for your kindly help!

Taxicorn

Replies 4

Yes you can use their effective life or your own estimate.

 

Tax Ruling  2017/2 page 259 states an effective life of 6 years for a uber cars, so I would add another 3 years (50%)

 

However, I believe that once you start Prime cost you can not adjust the effective life, so you may want to start it off at 7 years instead of 8 as of 1/4/2015.

 

 

Enthusiast

Replies 2

Thanks macfanboy!

 

I trust you are right but I found a different definition on this website (it came through as the first result when I searched "ATO effective life of a car" on Google.

 

https://atotaxrates.info/tax-deductions/work-related-car-expenses/depreciation-of-vehicles/

 

It introduces 5 years effective life for Hire & travellers' cars. 

 

Now, my questions are:

 

1. Can I still make a change of effective years due to the circumstance change? Use 8 years effetcive life for the first 3 years (before starting the business) and use 5 or 6 years for the remaining years? 

 

2. If I wish to make my own estimation of the effective years for the remaining years, what should I do to ensure it is done in a legal way? Can I still use the depreciation schedule that I proposed above?

 

I do appreciate your kindly help.

 

 

 

Taxicorn

Replies 1

Just noticed that a new Tax Ruling 2018/4 has supeceded the other one.

 

This clearly states 8 Years for Uber and 6 Years for UberBlack (premiuim).

 

If you honestly beleive that you be putting in the kms, you can self-assess it at a quicker time like 5 or 6 years,

but would probably have to have the km's and a majority business use.

 

The link that you provided is an outdated unofficial link that does state that you need to check current Tax Commisioners Effective life  (i.e. TR 2018/4).

 

Most helpful response

Enthusiast

Replies 0

Thanks heaps macfanboy!

 

Yes, I think it will more sense to use self-assess effective life because:

 

In the first 3 years the car was only used for private trips with less kilometers travalled (approx. 10,000-12,000 kms per year)

 

But since I started Rideshare business, it becomes to 3,000-4,000 kms per month and certainly the car will lose value fastly.

 

Also, a good news is that I found the ATO Depreciation and capital allowances tool does allow to enter a "recalculated effetcive life year", which allows me to use 8 years as the effective life for the first 3 years and use 5 years for remaining years untill it is fully depreciated. After doing that the ATO tool produced the depreciation schedule as same as what I manually calculated in Excel. (previously I had question because I was not sure if the Year entered was financial year, or calendar year, now I can confirm it is financial year)

 

The Opening adjustable value as of 01/07/2018 will still be $17,805

2018-2019  $30,000 x (365/365) x (100%/5) x 75% = $4,500

2019-2020  $30,000 x (366/365) x (100%/5) x 75% = $4,512

2020-2021  $17,805-$4,500-$4,512=$4,341

 

I think this issue has completed resolved now but (ATO Community) please do correct me if anything wrong.

 

Appreciated your kindly help!

 

Enthusiast

Replies 0

Just saw your edit on your last reply.

 

But with the ATO depreciation tool it does provide an option of "Recalculated effective life" and ask for the "Income year to apply from". So what is that used for? 

 

Sorry for more questions but I think it is important to get things clear.