The 2021-2022 Federal Budget will see a number of changes made to the Instant Asset Write Off scheme, including an extension on the temporary full expensing (TFE) benefit. This means that business owners with vehicles have a 12-month extension in which they can claim for their current vehicles and get new ones out on the road.
We discuss how these changes will affect instant asset tax write offs for vehicles below. Keep reading to find out how you may be able to take advantage of this opportunity!
What is the Instant Asset Write Off Scheme?
This scheme was first introduced in 2020, and the TFE benefit allows business owners to deduct the full cost of eligible capital assets from their profits for the year, instead of depreciating the value of the asset over five years, which is the standard.
For those that use their vehicles for business purposes, or for businesses that operate with a fleet of vehicles, this benefit can substantially boost your bottom line.
Motor vehicles such as delivery vans, UTEs, most cars, and even motorbikes can be claimed for through the scheme. However, deductions for these assets are capped at a certain limit for each financial year. 2020/2021 has a $59,136 cap, while 2021/2022 will see the limit raised to $60,733.
What are the Eligibility Criteria for the Scheme?
Recent changes made to the scheme mean that now, most Australian businesses will be included. To be eligible, your business must have an aggregated turnover of less than $5 billion. Larger companies beware: ‘aggregated’ includes the turnover of parent companies, overseas parent companies, and any subsidiaries, though this doesn’t necessarily mean that bigger corporations won’t be able to claim.
These changes also benefit business owners with vehicle assets, both old and new. The TFE benefit applies to new depreciable vehicle assets, even if they were acquired before the scheme started, as well as the cost of improvements to existing, eligible vehicle assets.
Are There Exclusions to Vehicle Asset Write Offs?
The government has implemented considerably strict rules around who can claim, though eligibility is clear. You will not be able to benefit from the scheme if any of the following apply to your business vehicle assets:
- Vehicles that cost more than the asset cap (i.e. more than $59,136 for 2020/2021)
- Vehicles located overseas
- Vehicles which are not used in or for the business
Cars can be written off up to the limit of the current financial year, excluding GST, but you will be unable to depreciate anything over that value. This rule has actually always been in place and is not exclusive to the TFE benefit. It serves to prevent business owners from splurging on lavish vehicles unnecessarily.
What is the New Asset Write Off Deadline?
The scheme applies to all assets, including vehicles, purchased any time after 7.30 pm AEDT from 6 October 2020 to 30 June 2022. The extension is certainly helpful, but it’s worth noting that vehicle assets only qualify if they are in use or ready to be used by that date.
If you are expecting to replace business vehicles, they must be paid for and in your possession and ready for use, or already being used for business purposes.
Claiming for Your Business’s Vehicle Assets
Tax time is around the corner once again. We advise our clients to discuss their tax requirements thoroughly with their accountants to utilise the asset write off scheme in a beneficial manner. Vehicles are one of the costliest assets for certain businesses, so any tax-related elements should be well investigated.
For vehicle performance, tuning and upgrades, get in touch with our team!