How should I account for my trade vehicle fitout cost?
Let’s say you’ve just bought a new trade vehicle. It’s an empty shell for now, but you’re keen to fit it out with tool racks and sliding drawers (like these sweet Camco ones in the photos) before you start using it for your trade.
There are three questions that might come up:
1. Do I depreciate the cost of the fit-out or do I expense it?
When something is fitted to the vehicle in a permanent way, it becomes part of the vehicle. It gets added to the cost of the vehicle and then depreciated as one unit. Most fitouts would meet this definition if they are welded or bolted permanently to the vehicle.
Therefore, fitout costs are generally added to the cost of the vehicle and depreciated each year at the rate provided by Inland Revenue. Other costs like signwriting the vehicle or installing a towbar are treated the same way.
New price of the vehicle
Cost of the new fitout
Cost of signwriting
Cost of towbar
Starting book value of the vehicle
2. Is it different if I’m upgrading my old vehicle rather than buying a new one?
No, the only difference is you’re starting with the vehicle’s book value rather than the purchase price. If you’ve been using your van for a while but decide to invest in a sweet new fitout for it, the cost of the fitout will be added to your vehicle’s book value.
Book value of the old vehicle
Cost of the new fitout
New book value of the vehicle
3. What if I sell the vehicle and fitout?
When you sell a trade vehicle along with its fitout, the difference between the sale price and the book value is added or subtracted from your income, so has an impact on your income tax. Quite often the book value ends up being less than the price the vehicle is sold for, especially in a market like the current one where used vehicles are in demand. While this is good for your business cashflow, it does mean there is tax to pay.
In the example below, the vehicle was sold for $5,000 more than the book value, so $5,000 will be added to the taxable income for the year, resulting in more tax to pay.
Book value of the vehicle
Sale price of the vehicle
When it comes to investing in trade vehicle fitouts, there are often good business benefits to the decision. Time savings from knowing where everything is, better safety from not having loose tools in the vehicle as well as a tidy and professional look.
By having a good handle on how to account for the fitout cost you’ll be better placed to maximise any tax savings as well.
Trade vehicle images in this article are courtesy of Camco Industries