Instant Asset Write-Off
Posted in Buyer Advice
Instant Asset Write-Off
Buying a car for your business this tax year? The instant asset write-off threshold increase will end on 30 June 2023. Get in before the end of this financial year to not miss out!
With the threshold for immediately deductible items (including cars) raised from $150,000 to instead apply to capital assets of any cost price for business with annual turnover of less than $5 billion (up from $500 million) for new assets, or $50 million (for used assets) purchased for your business this financial year will be 100% written off your tax
WHAT IS THE INSTANT ASSET WRITE-OFF?
It’s obviously more complicated than the government just handing out tax returns for free.
This form of accelerated depreciation allows you to reduce your taxable income by deducting eligible purchases – resulting in a cash flow benefit relative to the rate you’re taxed at.
In real terms, this means that small businesses will have a less complicated tax return to complete, as their assets will either qualify for the immediate write-off with depreciation based on useful life. For example, the ATO assesses the useful life of a business vehicle at a maximum of 8 years.
In order to make the most of the deductions, businesses would have to claim before 30 June 2023 in order to maximise cash flow benefits with any assets claimed.
WHAT CAN I CLAIM?
The allowance permits for any asset you need to run your business including cars, vans and operating equipment (such as new furniture for a café or extra water tanks for a nursery). In terms of business vehicles (designed to carry a load of less than one tonne and fewer than nine passengers), you may be able to claim an immediate deduction where the cost is less than $59,136 excluding GST. The significance of $59,136 is that this represents the car cost depreciation limit, so regardless that the concession has no limit, the concession for cars defaults to the $59,136.
So if a business owner purchases a passenger car for $140,000, and the car is used for 90 per cent business and 10 per cent personal use, then the total deduction would be 90 per cent of $59,136 – or $53,222. For other motor vehicles, e.g. commercial vehicles designed not principally to carry passengers, may be able to claim an immediate deduction without a limit, where this used to be capped at $150,000. This could be a used van to make your café mobile during lunchtimes, or upgrading to a new cab chassis ute to fit an existing tray setup.
MISCONCEPTION
A common misconception is that a claim back means you get the equivalent back in tax. That's not the case however, as the actual operation is based on marginal tax rate of a taxpayer.
For example, sole trader has business profit of $90,000. Therefore they are at the top of the tax bracket of 32.5 per cent plus the Medicare levy of 2 per cent. Now, if this sole trader buys a ute for 100 per cent business use for $30,000 (excluding GST), they have satisfied the instant asset write-off rules and they would get an instant asset deduction of $30,000. This would reduce their taxable income to $60,000 and they would save 34.5 per cent in tax on the $30,000 spend, equaling $10,350. This saving would be delivered via the taxpayers tax return when they lodge their upcoming income tax return.
Stamp duty, luxury car tax, any accessories, on-road costs and delivery costs are included in the threshold price, but not insurance and registration.
BUYING A CAR
If you need a business vehicle, Motorama has dedicated, expert teams across our dealerships who can help you with solutions to get you on the road with expertise in service, sales, finance and insurance. We also have a fantastic range of new, used and demonstrator cars under $150,000 across our group of dealerships. They will also be able to give you more specific information for your business needs.
