Businesses can save on tax by investing in new capital assets through a package of relief measures that was put in place to support Australia's pandemic recovery.
Temporary full expensing (TFE) enables businesses to deduct the entire cost of eligible capital assets from their profits for the year instead of spreading it out over multiple years. TFE will be available until June 30, 2023, so it is crucial for businesses to take advantage of it now.
Which assets are being written off?
Australian businesses can deduct the full cost of capital items, including fixtures, technology, tools, furniture, equipment, vehicles, motorbikes, and solar systems. The deductions for motor vehicles are capped at $64,741 in the 2022/23 financial year. The maximum asset cost is capped at $150,000 until June 30th, where it is then reduced to $20,000.
What are the eligibility requirements for instant asset write-offs?
Small - and medium sized businesses whose aggregated turnover is less than $500 million is eligible for instant asset write-off of up to $150,000 for assets costing less than the $150,000 threshold which are purchased and used in the year that the write-off is claimed. Temporary full expensing is also available for second-hand assets.
Are instant tax write-offs subject to exclusions or limitations?
Assets that are not qualified for full expensing include passenger cars that cost more than $64,741 in the 2022/23 fiscal year, buildings and assets eligible for capital works deductions, assets situated outside the country, certain primary production assets, and assets not utilized for business purposes.
Luxury cars can be written off up to a certain limit (currently $64,741 excluding GST), but any amount beyond that cannot be depreciated. This rule is in place to prevent businesses from buying expensive cars at the taxpayer's expense. However, commercial vehicles like vans, buses, and trucks that are bought and used for work purposes can be fully written-off, regardless of their cost. Note that this rule does not apply to motor vehicles that are not classified as cars for tax purposes.
For tradies, larger Utes can be classified as commercial vehicles if they have a carrying capacity of more than one tonne. This means that the car limit does not apply, allowing businesses to potentially purchase more expensive Utes and write off the entire cost using TFE.
When can instant tax write-offs be applied?
Assets acquired until 30 June 2023 are eligible for the tax break, provided they are in use or ready for use by that date. If assets have been paid for but not received or still in boxes, they are not eligible.
What is the process for claiming the instant tax write-off?
To make a claim, use your tax return and keep all purchase documents as proof. The first chance to claim is when you file your return.
If you're considering to purchase or need to discuss it for pre-approval and better negotiation, simply call us to get into a strong negotiating position.
We can assist you with sourcing and financing the ideal vehicle or equipment for your business needs before the program ends on June 30, 2023.