Business Instant Asset Write Off Australia Explained

Business Instant Asset Write Off Australia Explained

Is Your Car a Tax Deduction? 

Is your car an instant asset write-off? Can you claim a tax deduction for that? How does this instant asset write-off thing even work?!?? These are a few questions that we get asked quite a lot here at MaxMyProfit so we have decided to take the time to answer these queries for you so grab a pen and a pad! 

Instant Asset Write Off 2021 Australia

A lot happened in 2020 and with the virus hitting our shores and essentially shutting the country down for a few months The Government had to rethink a lot of its strategy around stimulating the economy. 

One of these strategies was making amendments to what was called an instant asset write-off. Now, this policy was always there, and it worked up to $30,000 in value but, due to the pandemic, the government raised it to $150,000. This meant that you could buy things like big pieces of machinery and you could write them off in the financial year. 

Now there are a few cut-off dates for this. You must have purchased the equipment by the 31st of December 2020. Now, this seems like a missed opportunity. If you didn’t make a purchase before this date, then you’ve missed the boat. Well, there’s some good news! This scheme has been extended, but you must use the equipment or have it installed by the 30th of June 2021. So, if you’ve bought a piece of machinery or a car and you’re waiting on delivery make sure you push the company you bought it from and make sure they give you it before this date! If you can use it for business purposes before this time, then you can make a claim.

Having said that the instant asset write-off isn’t disappearing. They’ve actually changed the name of it to the ‘temporary full expense’. This came in in October 2022 and is valid until the 30th of June 2022. You can now buy equipment for your business; upgrade existing equipment and you can even buy second-hand equipment under certain circumstances. And it’s still valid up to $150k. 

Can you go and buy a Porsche or Ferrari or something crazy and get a full tax deduction?

This is a question that we get all the time and unfortunately, the answer is no. There are certain items in your expenses where they will either limit the amount or exclude it completely, so you have to get yourself up to speed on that. 

For the financial year of 2021, the cap on motor vehicles is $59,136.00 and it must seat less than 9 people and less carry less than one tonne to qualify. This is to stop people from rorting the system, it is there to stimulate the economy and for buying equipment for your business not so you can buy a sports car. If you’re buying a CNC machine or a forklift or something that’s 100% for business use then you won’t have any problems. 

Now, I’m not an accountant or financial advisor and I think you should get your own professional advice. 

You don’t get 100% of your money back, this is a common misconception of how tax returns work.

Think about it like this if your business is profitable and you made $100,000. If your profit and loss statement shows $100,000 in profit then you will pay the tax rate applicable to your company. For example, 27.5% so you’d pay $27,500.00 in tax. 

So, if you bought a piece of equipment at $100,000 you can put that into your books as an expense. Well, you can as long as it wasn’t a car that’s excluded! This $100,000 would then bring your profit down to zero and you would then pay no tax on it. 

Now, let’s say you bought a luxury car at $100,000 you could only claim $59,196 and you would still have to pay tax on the remaining amount as that is the maximum expense you can claim for a car. But, if you were to buy a truck that could carry 8 tonnes then you can put the full amount down as an expense as it is equipment for your business. 

Hopefully, this has helped you to understand how you can go about using expenses in your business to reduce the amount of tax you pay. But you also must consider whether your business is making a profit. If you’re not making a profit or you’re planning losses for the next few years, there isn’t much benefit in spending money for the sake of spending money. You don’t have any profits that are tax-deductible because you’re not making any profits as it is. 

I’d also like to say that even if you are profitable, you want to make sure that you need the equipment or you need the car before you go out and make the purchase. Ask yourself if the item is going to help your business. I’d much rather buy an appreciating asset after I pay tax rather than spend money for the sake of spending it! 

And of course, if your business is not profitable, guess what you need to do. You need to reach out, talk to somebody at MaxMyProfit about Business Coaching. The team here is ready to help you build the business that you imagine. Thanks for reading! 

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