The Australian Federal Government announced changes to the Instant Asset Write Off scheme in its latest budget and while it’s not yet officially law (as of May 2023), if it is approved it may affect your purchasing decisions as a business owner.
The scheme itself allows some small businesses to claim an immediate tax deduction for eligible asset purchases. While it is not being cancelled completely, the updates are significant.
According to news.com.au, tradespeople in particular will feel the effects of the changes to the instant asset tax write off. Until now, they have been able to claim the cost of a new ute as an immediate tax deduction, up to $65,000. However, the cap is set to change to $20,000, and few vehicles cost this little. As reported in drive.com.au, there aren’t many vehicles worth less than this amount, especially when it comes to vans and utes.
The previous write off scheme included businesses with an aggregated turnover of less than $500 million and assets to the value of $150,000, provided they were used within the year of purchase.
The official plan from the budget for the updated Instant Asset Write off is as follows:
Small businesses with aggregated turnover of less than $10 million will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024.
The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year after that.
What’s more, the threshold for business earnings has been reduced and the instant asset write off will only apply to businesses with a turnover of less than $10 million.
What this means for your business
The change to the instant asset write off threshold doesn’t mean you can’t buy vehicles for your business, rather that you can’t claim the full value as a tax write off in the same financial year as it was purchased. Instead, you have to claim in parts, over three financial years instead of one.
For some businesses, this will affect cash flow because they may have been relying on the instant write off to reduce their tax bill. As a result, they may decide to take action and make a purchase before July 1st, or rethink their approach to asset purchases.
If you have surplus cash ahead of the end of the financial year or are in need of costly assets, now is a good time to reach out to your accountant. It may make sense to make your purchase before the end of the financial year so you can take advantage of the instant asset write off before it changes.
Looking for a tax accountant to help you plan your small business spending? Contact Mobbs & Company today. We have offices in Caboolture, Brisbane and on the Sunshine Coast.