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Car acquired at a discount

Last updated 13 July 2020

If a car is acquired at a discount, the first element of its cost may be increased by the discount portion. The discount portion is any part of the discount that is due to the sale of another asset for less than market value – for example, a trade-in.

A car's cost is not affected by a discount obtained for other reasons.

The adjustment is only made if the cost of the car (after GST credits or adjustments) plus the discount portion exceeds the car limit and if you or another entity has deducted or can deduct an amount for the other asset for any income year.

This rule does not apply to some cars fitted out for transporting disabled people.

When a balancing adjustment event occurs in relation to the car, the termination value must be increased by the same discount portion – see Balancing adjustment rules for cars.

Start of example

Example: Car acquired at a discount – ignoring any GST impact

Kristine arranges to buy a $60,000 sedan for business use from Greg, a car dealer. She offers the station wagon she is using for this purpose, worth $20,000, as a trade-in. Greg agrees to reduce the price of the sedan to below the car limit if Kristine accepts less than market value for the trade-in. Kristine agrees to accept $15,000 for the trade-in and the price of the sedan is reduced to $55,000 (that is, a discount of $5,000).

The cost of the car plus the discount is more than the car limit so the first element of the car's cost is increased by the amount of the discount to $60,000. As the first element of cost then exceeds the car limit, it must be reduced to the car limit for the income year. The termination value of the wagon would be taken to be the market value of $20,000 as Kristine and Greg were not dealing at arm's length – see Termination value.

End of example