Gain on disposal? The costs of selling your car
With years of low inflation, strong competition and a high Aussie dollar it’s never been cheaper to buy a new car.
And, after getting a great deal on the purchase price, the cost of acquisition is further reduced by claiming back the GST and the very generous depreciation allowances provided for business users by the Australian Taxation Office.
Until 31December last year, the accelerated depreciation meant business owners could claim $5000 plus 15 per cent of the cost-base balance in the first year, and 30 per cent of the diminishing value every year thereafter.
This arrangement was due to end with the passage of the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013.
As that Bill is not proceeding, it looks like the generous motor vehicle tax deductions are still available.
Those deductions have been so generous over the years that it was possible that your trade-in was still worth more than its depreciated written-down value.
When a car is sold for more than its depreciated written-down value there is said to be a “gain on disposal”.
That is, some of the tax previously refunded will need to be re-paid.
For taxation purposes, this amount can also be off-set against un-deducted funds in the capital pool.
Those un-deducted funds might relate to the purchase of a previous vehicle that cost more than the Luxury Car Limit, which is currently $57,466.
For a full explanation of this, seek professional financial advice.
Low prices, long warranties and new technology really do make the arguments for trading up irresistible.
But those of us who already have wheels will have to decide what to do with our current vehicle.
Of course, trading your car in will always be the easiest and most convenient option.
There are none of the hassles of advertising, finding a buyer, test drives, haggling and the annoyance of dealing with those who are just looking.
But dealerships make a living from what they do, and there are times when that trade-in figure will be painful.
All of those cheap new cars mean that used car values are also very depressed, and there are really some great bargains out there for those with the time to shop around.
A case in point is a colleague’s recent purchase of a new C class Mercedes.
He found that special smell that new cars have irresistible, and the new C class model is a significant upgrade from his “old” 2012 version.
Anxious not to lose a sale on the new car, the dealer warned my colleague that there would be no good news on the trade-in price, given that his current car had depreciated by 50 per cent in just two years (that is, a rate of depreciation much faster than the tax write-off).
It’s all a reflection of the laws of supply and demand.
The new C class has gone up marginally in price, but it’s loaded with more airbags, automated braking and is 100 kg lighter, making the superseded model yesterday’s technology.
To sweeten the deal, the salesman offered to help my colleague sell his car privately.
After all, a quick check on the Redbook pricing website suggested he’d be able to ask about $9000 more than the dealer would offer, and his old car was in pristine condition, still under the manufacturer’s warranty and had only 14,000 kilometres on the dial.
My colleague left his car at the dealership for the morning and took a demonstrator vehicle for the day.
The dealer, at their expense did a safety inspection and roadworthy check ($77), detailed his vehicle, photographed it and uploaded the details ($115) to one of those internet sites that’s sending printed newspapers broke.
All was done, and now he just had to wait for the phone to ring off the hook.
Two weeks later, and there has been barely a nibble.
Perhaps the market for second-hand Mercs collapsed the moment his vehicle’s details were uploaded, but as this column is being written it is still for sale.
It’s such a good car he might just change his mind and keep it after all.
Doctor Clive Fraser