When selling your second-hand car
make sure you weigh up any tax benefits and/or costs!
We have been getting a few clients recently who have been hit with a profit for tax purposes that they have made from selling their vehicles. Covid 19 has brought a lack of new vehicles available, which has led to a large increase in the price of second-hand vehicles.
A number of clients have been caught unaware that if they sell their vehicle second hand for more than the depreciated value that we may have written down in the tax return, they have to record that “profit” as income, and then pay tax on it.
For Example:
- We recently had a client whose work-related car use is 85%.
- The car had a written down value of ($20,000) and it was sold for $30,000.
- Hence a profit of $10,000 was made.
- Since the client’s work-related car usage is 85%, the profit amount of ($10,000 x 0.85 = $8,500) had to be added to their Taxable Income.
- The tax was then charged at their normal tax rate.
For more information on the tax rules, see this ATO page:
If you replace your vehicle, you can still claim depreciation on the work vehicle, and claim the work percentage on the new vehicle. That is assuming that you are able to obtain the new vehicle in this current tax year.
Where the dilemma arises is that with the delay on new vehicles, you may not be able to replace the old vehicle with a new one, so it means that you may make additional income on the vehicle, which you weren’t planning on.
If you are considering selling your vehicle, then please make sure that you consider and review your tax position first, so that there is not a nasty surprise when you lodge your tax return.
If you need any assistance with the tax implications of selling your second-hand car or depreciation value, contact us
