Instant Asset Write-Off, Now Even Sweeter

Business man using calculator for tax time

As COVID-19 continues to wreak havoc on Australian businesses, the Federal Government has announced the extension of the Instant Asset Write-Off scheme to further support economic recovery.

What’s Changed?

Ultimately the terms of this tax write-off remain the same. Businesses can write-off eligible assets up to $150,000 to significantly reduce taxable income. If your plans are to purchase a new car and claim the entire expense, it needs to fit the following criteria (1):

  • The vehicle is only used for business purposes
  • The payload capacity of more than one tonne
  • Can carry more than 9 passengers

Otherwise you can only claim a car limit, which has been increased from $57,581 to $59,136. If you make this claim, you are unable to make any additional claims under depreciation. What has changed is the cut-off date and the eligibility criteria for businesses to make this claim.

Previously, the instant asset write-off was only available until June 30, 2020. Since the announcement, the deadline has been extended until December 31, 2020—giving businesses more time to purchase, as well as have their assets acquired and installed. Additionally, businesses with an aggregated turnover of more than $500 million may now reap the reward. Previously this scheme was only available to businesses with an annual turnover of less than $50 million(2).

The expansion and extension of the write-off now allows more businesses to take advantage of increased cash flow as the economy continues to reopen as we head into 2021.

Things to keep in mind

With what we have learnt from the first stage of the instant asset write-off, there are a few things to keep in mind.

Can you claim again?

If you were lucky enough to have already claimed an asset in your 19/20 tax return, you may be eligible to make another significant asset purchase with the extended $150,000 instant asset write-off threshold. Work vehicles purchased, installed and on the road between July 1 and December 31 will be deductions you can claim in the 20/21 financial year. 

Not a physical cash-back

The instant asset write-off is not a physical cash-back incentive, ie, you will not receive $150,000 back in cash if you buy a $150,000 work ute(3). When you claim your car on tax, you are simply reducing your taxable income and lowering the amount of tax you owe. This means you will have more cash left over after tax time to invest back into your business. 

How the car is purchased is irrelevant

To purchase a car and claim the asset write-off, it’s important to remember that you don’t need to have purchased the car outright. If you plan on acquiring a business loan or financing the work vehicle, the purchase will still qualify(3). 

Time Is Running Out

Due to the large increase in demand for new vehicles, particularly utes, there was no doubt many business owners were unable to have their vehicle “in use” before June 30. Luckily the extension has allowed these businesses to still reap the benefits. The new deadline, however, is less than 3 months away. So, if you are wanting to take advantage of this asset write-off, you need to act quickly.

If you see the need for another work vehicle in early 2021, it’s in your best interest to purchase and have the vehicle installed and ready to use by December 31. With dealership contacts across Australia, Car Search Brokers are here to help find a work vehicle to meet your business needs. Take advantage of this fantastic tax incentive with the help of our team of experts. Contact us today.

 

 

(1) https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/Simpler-depreciation-for-small-business/Instant-asset-write-off/ 

(2) https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/extending-instant-asset-write

(3) https://www.caradvice.com.au/848299/instant-asset-write-off-2020-car-tax-questions/

Posted on October 28, 2020 in Car Buying Tips