How to make the most of instant asset tax write-off this EOFY

Clearly, we live in strange times, with the Australian Government handing out money in an almost willy-nilly fashion to keep our economy alive, but when you hear that it’s now possible to buy yourself a vehicle worth up to $150,000 and instantly write off that amount from your tax, it’s hard to know what to do first – check the calendar and make sure it’s not April 1, or call your local Porsche dealer.

What is clear is that you should move quickly, because the changes to the ‘Instant Asset Tax Write-Off’ – which lifted the threshold amount for claimable purchases to $150,000 from the previous $30,000 – will end on June 30, 2020.

The end of financial year is always a busy and excellent time to buy a car, but this year the government is really supercharging the market.

Not everyone, of course, can take advantage of this amazing opportunity to basically buy a car using money you’d normally have to give to the Australian Taxation Office. You do have to be a business, but even small businesses, including sole traders, can take advantage of the changes, which were announced on March 12, as part of the government’s $17.6 billion economic plan to stave off a coronavirus-caused recession.

Previously, any business with a turnover of $50 million or less could instantly write off the cost of an asset – including a new or second-hand vehicle – at a price up to $30,000. The March 12 changes lifted the asset ceiling to $150,000 and the size of the businesses that could take advantage of it to those with an aggregated turnover of up to $500 million.

In short, the federal government really wants to get people spending money on buying new assets, and that includes motor vehicles, trucks, tractors, earth-moving equipment, forklifts, you name it.

“Our targeted stimulus package will focus on keeping Australians in jobs and keeping businesses in business so we can bounce back strongly,” prime minister Scott Morrison explained.

“The economy needs temporary help right now to bounce back better so the livelihoods of all Australians are protected.”

So, is it as simple as it sounds?

Is anything in relation to tax ever as simple as it sounds? While the words “instant asset tax write-off” make it sound like the government will hand you a bundle of cash if you buy yourself a sports car for $149,000, the world hasn’t quite gone that doolally yet.

Still, Booth’s Motor Group does describe it as “the ultimate business tax deduction for buying a car”.

“The $150,000 instant write-off decreases your payable tax on business-related purchases and is a temporary increase expected to last until June 30th, 2020,” Booth’s explains.

“This means you can spend up to $150,000 on assets, enabling your taxable income to be reduced by the same amount! The threshold is calculated per asset valued under $150,000 making it possible to instantly write off multiple assets.”

To make that as clear as possible, if your taxable income was a nice, round $500,000 a year and you bought a $100,000 new truck for your business under the instant asset tax write-off, you would then only have to pay tax on $400,000, leaving you with an asset and a big saving.

This is assuming that you used the vehicle entirely for your business, because the amount you can claim is reduced if you also use it outside of work, on a percentage basis.

Here is where things get tricky, though, and where it pays to read the fine print. And then, when even the fine print doesn’t clarify things, it’s best to get in touch with your accountant and see how the changes apply to your personal situation.

Specifically, the $150,000 ceiling applies to new commercial vehicles, so utes and trucks are fine. ‘Cars’, however, which are defined by the government as vehicles “designed to carry a load of less than one tonne and fewer than nine passengers” are also eligible for the tax write off, but the claimable purchase price drops to $57,581.

Clearly, this is still better than the $30,000 write off being offered at the start of the year for a non-commercial vehicle, but it’s not quite as exciting as the $150,000 headline amount. And it means you can’t buy a Porsche, or not unless the Germans quickly come out with a new one-tonne ute.

Can you give me an example that’s easy to understand?

Why yes, we can. The helpful folks at Booth’s Motor Group point out that you could buy a Hyundai i30 Go with a manual gearbox for $20,990 and, if you use it 80 per cent of the time for business, you’d then be able to claim $16,792 off your taxable income.

This example remains unchanged, of course, from the previous set-up, with the $30,000 limit, and it’s worth keeping in mind that you’ll still be able to access that saving after June 30, if you need to wait.

Another example would be the Toyota HiLux Rugged X, which is clearly a commercial vehicle. If you bought one of these for its $64,490 price, and you used it 100 per cent of the time for work purposes, you’d be able to take the whole $64,490 off your taxable income.

One brand that could really benefit from the raising of the threshold, of course, is Ram, because you could now buy even the range-topping Ram 1500 Laramie Crew Cab for $104,450 and claim the whole amount as an instant tax write-off.

Remember that the scheme applies to new or used vehicles, so the world really is your oyster when it comes to shopping.

Finally, before you make a purchase and assume you are covered, check with a tax professional, rather than a car dealer, because the fact is the difference between the $150,000 headline limits and the $57,581 limit for cars has caused both confusion and consternation in the car industry, which would like the whole thing to be a lot simpler.

The CEO of the Australian Automotive Dealer Association (AADA), James Voortman, has been keen to see all vehicles come under the upper limit.

“Dealers are grateful for stimulatory measures given the sale of new cars have been contracting for 23 months in a row. We need to breathe life into this industry, and dealers believe that businesses should be able to instantly depreciate vehicles under the $150,000 threshold,” Mr Voortman argues.

We wish him luck.