Business Asset Purchases: Instant Asset Write-Off and Car Depreciation

Instant Asset Write-Off/Temporary Full Expensing

The Instant Asset Write-Off Scheme was introduced in 2015 and allowed small businesses to claim immediate deductions for the business portion of certain assets if the total cost was less than the prescribed threshold amount. Over the years, the eligibility criteria for the Instant Asset Write-Off Scheme have been continuously changing, with the most recent changes being made in 2020.

In response to the effects of the coronavirus pandemic, the government introduced a new version of the scheme, called ‘Temporary Full Expensing’, to further support businesses and encourage investment. This allows eligible businesses to claim an immediate deduction for the business portion of the cost of any eligible depreciating assets first used or installed for taxable purposes between 6 October 2020 and 30 June 2023.

Business owners can also deduct the full cost of improvements to these assets or their existing eligible depreciating assets made during this period.

To be eligible for temporary full expensing businesses need to meet the below criteria:

1. Have an aggregate turnover of less than $5 billion
2. Be a corporate tax entity who meets the alternative income test

It is important to note that the temporary full expensing scheme is only available until 30 June 2023. The Australian government is yet to advise what the depreciation measures will look like moving forward. Unless there is an announcement to be made during the upcoming budget in May, it is likely that we will revert to the old depreciation rules.

To work out what tax depreciation incentives work best for your business I’ve included the Interaction of Tax Incentives PDF the Federal Government has provided with all the details to assist you.

Car Depreciation

Assuming that there is no extension of the temporary fill expensing or instant asset write-off rules, any asset that is received after 30 June 2023 will need to be capitalised and depreciation deductions claimed over a number of years. This will apply to cars not delivered and registered before 30 June 2023.

The amount of depreciation that can be claimed in relation to a motor vehicle is generally subject to the Luxury Car Limit, unless the vehicle is a special purpose vehicle such as a truck, or certain vans or utes. Most standard cars will be subject to the depreciation limit, which is indexed annually by the ATO.

Considering vehicle purchases have a cost limit, it makes sense that the GST claimable on the subsequent purchase via the lodgement of the Business Activity Statement is also limited to 1/11th of the cost limit.

For the 2022-23 financial year, the motor vehicle cost limit is $64,741 and the GST limit is $5,885. The increase from 2021-22 is the biggest jump in some years, as shown in the table below.

Summary

Deciding whether or not to buy an asset is a big decision, and depends on your business cash flow and finance availability, as well as what increased capacity or improved efficiency you can achieve from the asset. Tax is just one consideration, but you want to take advantage of any available tax benefits where you can.

This is where it helps to speak to a trusted accountant. Our team at BLG Business Advisers are Wollongong Accountants who service right around Australia. We care about making you and your business thrive and are always available if you need some advice or guidance, so please talk with us today.

*Please note that the above information is general advice only. We recommend you seek advice from a specialist relevant to your personal situation. This information is relevant at the time of publishing and is subject to change*