When you trade-in a car or any other asset, the agreed price of your trade-in is usually deducted from the cost of your newly acquired asset when you make the deal with the seller.
While the sale and the purchase may appear as one transaction, there are 2 transactions for tax purposes, including the simplified depreciation rules. These transactions are:
- purchase of a new asset
- disposal of an existing asset.
If the purchase price of your asset (irrespective of the amount you were paid for your trade-in) is equal to or more than the relevant instant asset write-off threshold, it can't be immediately written-off and must be added to your small business pool.
When you dispose of a depreciating asset, a balancing adjustment event may occur. If you have traded in a depreciating asset there is a balancing adjustment event, and you need to adjust the closing balance of your pool. If the closing balance of your pool is less than zero, an amount will be included in your assessable income.
The ATO has more information about disposing or ceasing to use depreciation assets
