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Re: Motor deduction - interest on a motor vehicle loan

Newbie

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Hi, I'm a sole trader who performs courier with my own car.

In Deductions for Motor Vehicle Expenses, I'm not sure what does "interest on a motor vehicle loan" mean.

 

Let's assume I purchase a new corolla.

The car price is around $30k, but finance is able with $100 per week for 4 years & $10k final payment. (3% interest)

And I purchased and started using the car on 01/07/2021.

 

Am I eligible to deduct for whole $100 per week amount? That would be $5,200 at the next tax return.

Or, should I calculate the interest portion? Could be around $150 I guess.

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ATO Community Support

Replies 2

Hi @simplegg

 

In order to claim a deduction, we consider when you became liable for the debt. Although you have gotten a loan for the cost of the car, you're still liable for the amount of the car. This means you can the cost of the vehicle in the year you purchased the vehicle.

 

For interest payment, apply the same ideas. You claim a deduction when you become liable to pay the amount, even if the amount is not yet paid. This means as the interest is applied to your loan, you claim a deduction for it.

 

You can read about the meaning of "incurred" for deductions in TR 97/7 on our legal database.

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Community Manager

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Hi @simplegg,

 

We are looking into this and will get back to you soon. 

Most helpful response

ATO Community Support

Replies 2

Hi @simplegg

 

In order to claim a deduction, we consider when you became liable for the debt. Although you have gotten a loan for the cost of the car, you're still liable for the amount of the car. This means you can the cost of the vehicle in the year you purchased the vehicle.

 

For interest payment, apply the same ideas. You claim a deduction when you become liable to pay the amount, even if the amount is not yet paid. This means as the interest is applied to your loan, you claim a deduction for it.

 

You can read about the meaning of "incurred" for deductions in TR 97/7 on our legal database.

Newbie

Replies 1

Thanks for the quick reply. Then is this right what I understood?

 

ex)

I purchase a new car at $30k in December 2020, with a loan.

Total payment until finishing the loan would be $33k

$3k interest is considered as incurred in the 2020-2021 financial year.

I can claim the $3k for the tax deduction as a reason for "interest on a motor vehicle loan".

 

Many thanks!

ATO Community Support

Replies 0

Hi @simplegg,

 

The $30,000 for the vehicle would become claimable immediately at the time you sign for the vehicle, that's right.

 

The interest, though, will be claimable as it applies to the account. If your interest (and any account keeping fees) apply monthly, then each month that applies will be deducted based on the year it gets added. So for the interest that gets added to your account statement, you claim that in the year it happens.

 

You would claim the interest as "interest on a motor vehicle loan."

 

Hope this clears it up! Smiley Happy