Instant Asset Write-Off 

in BigBox Motoring Advice

Buying a car for your business this tax year? The instant asset write-off threshold has been increased and expanded. Get in before the end of this financial year to not miss out!

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 2022 (with a proposed extension to 30 June 2023) in order to maximise cash flow benefits with any assets claimed.

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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.

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