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3 min read
There’s a general saying that a vehicle starts to lose value the moment it leaves a dealership. That’s depreciation in action. And while you can’t avoid it, you can use it to your advantage at tax time, if you know how it works. That includes being smart about what and when you’re buying, as well as when you sell it or trade it in.
We’ll break down what depreciation is, explain instant asset write-off and show you how it could help lower your taxable income. Let’s get started.
Simply put, car depreciation is how much value a vehicle loses over time, and for businesses, that matters.
The Australian Taxation Office lets you claim this decline in value as a tax deduction each year. This amount is based on how long your vehicle is expected to last and how much you use it for work. That makes business vehicle depreciation a really handy way for you to offset the cost of owning that vehicle through your business. From diminishing value depreciation to instant asset write-off, there are lots of different options ahead of you and your business, which we’ll discuss later on in this article. But first, we’ll take a closer look at some of the biggest factors that can determine your vehicle’s depreciation over time. These could affect not only your resale value, but also how much you could claim at tax time.
Make and model
Buying a vehicle from a trusted brand with an excellent reputation often means your vehicle holds its value better. Toyota models are known for their reliability and are generally in high demand, which increases their market value and slows down their rate of depreciation.
Vehicle maintenance
The better you maintain your vehicle, the slower it depreciates. So, it’s important to regularly service your vehicle and maintain its appearance. A Toyota Genuine Service will ensure your vehicle or vehicles receive dedicated care and attention from Toyota-trained technicians. You may also be eligible for Capped Price Servicing
A well-kept logbook is also a great way of showing potential buyers – and the ATO – that your vehicle has been properly looked after.
Interior and exterior condition
It might sound simple, but keeping a clean and tidy vehicle can go a long way. Well-maintained vehicles are almost always more attractive to potential buyers.
Accessories
Sometimes adding accessories, particularly Toyota Genuine Accessories, can improve your vehicle's value. Toyota Genuine Accessories are designed to integrate seamlessly with your Toyota vehicle and must meet Toyota's stringent quality standards. So, with Toyota Genuine Accessories installed on or within your Toyota vehicle, you could be able to re-sell your vehicle at a higher price when it reaches the end of its life cycle.
Your vehicle’s age
In most cases, the older a vehicle is and the more kilometres it’s done, the more it depreciates. Physical appearance can also affect its value, especially if it hasn’t been serviced regularly.
Fuel efficiency
Fuel-efficient cars, utes, vans and other vehicles are generally cost-effective to run and tend to have better long-term resale value. With this in mind, Toyota’s Hybrid Electric range is often considered a smart, long-term business investment.
Market demand
Much like the brand you choose, the vehicle model and style will also affect resale value, so consider the potential for future market demand for your vehicle before you buy. Buying a vehicle that is in high demand when you choose to sell could enable you to re-sell your vehicle for a higher price.
Looking for a vehicle that holds its value? The Toyota range is built with businesses like yours in mind.
Discuss vehicle tax benefits with Toyota fleetOne big benefit of claiming vehicle tax deductions as a business owner is it’ll reduce your taxable income – meaning you’ll pay less tax each year. There are a few ways you can calculate car depreciation for tax purposes, depending on your business’ annual turnover and the value of the vehicle you’re buying. Let’s take a look at the options ahead of you so you can get the most value out of your vehicle.
If your business’ annual turnover is under $10 million, great news – you can use the ATO’s simplified depreciation rules. In this case, you have two options ahead of you.
Option 1. Instant asset write-off
An instant asset write-off lets you claim the cost of an asset as an immediate deduction, rather than writing it off bit by bit each year. However, for your vehicle to be eligible for the instant asset write-off option, your purchase price will need to be below the ATO’s defined threshold (for the 2024-25 and 2025-26 financial years, this threshold was $20,000). As new vehicles almost always exceed the threshold, it’s really only a suitable option if:
Keep in mind that to qualify, your vehicle or accessories generally need to be first used or installed ready to be used within the financial year. You’ll need to ensure that you have the right records and invoices to support your claim.
If you want to free up your cash flow, without waiting years to feel the benefit, this can be a smart option. Please refer to the link below for details.
Instant asset write-off for eligible businesses | Australian Taxation Office
Keep an eye on Toyota’s Used Vehicles marketplace if this is something that you’re considering for your business.
Option 2. Pooled assets
If the cost of an asset exceeds the relevant instant asset write-off threshold, then you must place the asset into the small business pool. From there, you can claim a set percentage each year. A small business depreciation pool is a way for eligible small businesses to group together (or “pool”) their eligible depreciating assets and claim simplified depreciation deductions on the whole pool - which saves time and boosts deductions earlier on. Please refer to the link below for more details.
Small business pool calculations | Australian Taxation Office
Considerations for sole traders and partnerships
Sole trader car depreciation works a little differently than if you’re claiming as a company or trust. If you’re using the same vehicle for both your business and for personal use, you’ll need to keep a logbook that shows what percentage of your use is related to your work.
The logbook method also applies for partnerships so each partner will need to keep a record. That’s because you may need to split deductions depending on how much each partner uses the vehicle for business. Toyota Halo, Toyota's Genuine Fleet Management Software, has a logbooking feature that improves the speed and accuracy of your logbook process with automated data entry and flexible export functionality.
If your business has an annual turnover over $10 million, or your vehicle doesn’t meet the simplified depreciation criteria, you’ll need to use general depreciation rules for your tax claim. Here, you have two options ahead of you.
Option 1. Diminishing value depreciation
This method means you claim more of your vehicle’s cost in the early years of owning it. It’s based on the idea that a car loses more value when it's newer. As your vehicle’s value decreases each year, so does the deduction amount. If managing cash flow is a priority for you, this method can be useful, as you’ll be able to claim a bigger benefit in the early years of ownership.
Option 2. Prime cost depreciation
With this method, you’ll spread out the deduction evenly over the effective life of the vehicle. It can be a good call if you’re after consistent, predictable deductions, especially if you’re planning to keep the vehicle for a longer time.
What do these car depreciation methods have in common?
The ATO requires a few key details to work out your claim. You’ll use these same elements for your car depreciation calculation, whatever method you go with:
Car depreciation limits
Keep in mind there’s a car tax depreciation limit set by the ATO. That means even if your vehicle costs more than the annual car limit ($69,674 for the 2024-25 and 2025-26 financial years), you can only claim depreciation up to the capped amount.
Considerations for companies and trusts
When it comes to company vehicle depreciation or if you run a trust, your vehicle is generally considered to be a business asset. However, if you use it for personal trips, you could trigger Fringe Benefits Tax. Please speak to your financial advisor or accountant for further information on fringe benefits tax implications.
Ready for the next move? Explore the Toyota Fleet range or chat to our experts about your business vehicle needs.
Discuss vehicle tax benefits with Toyota fleetTo optimise car depreciation deductions, it’s worth thinking about when to buy a business vehicle for tax purposes. For example, if you buy and start using your car for business soon before the end of the financial year, you can start claiming depreciation during that financial year, even if it's just for a few days. This means you’ll get a tax deduction sooner, which can help reduce your tax bill earlier and improve your cash flow.
It’s also really important to keep clear, consistent car depreciation records. Digital tools such as Toyota Halo can be really handy for simplifying this process, and help you stay compliant for audits and reporting.
Still feeling unsure how to calculate business vehicle depreciation or which method will work best for you and your business? Toyota for Business is here to help. Our business experts can help you compare long-term outcomes and make sure you make the most out of your fleet when it comes to tax time.
Ready to put it all into action? Explore the Toyota range or chat to our experts about your business vehicle needs.
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