Aussie tradies can buy a brand new ute and claim it on tax to get a much more generous than usual refund.
Treasurer Josh Frydenberg on Tuesday night announced the instant asset write-off scheme would be extended until June 2023, adding another year to the time limit announced in the October 2020 pandemic Budget.
‘Over 99 per cent of businesses, employing over 11million workers, can write off the full value of any eligible asset they purchase,’ he told Parliament.
‘Tonight, we again go further, announcing the extension of these measures for a further year until 30 June 2023, so a tradie can buy a new ute, a farmer a new harvester and a manufacturer expand their production line.’
Aussie tradies can buy a brand new ute and claim it on tax to get a much more generous than usual refund
What is the instant asset write-off?
The initial instant asset write-off, announced in the October 2020 Budget, allowed businesses to buy assets worth up to $150,000 and claim it on tax
The program, officially known as ‘temporary full expensing’ has been extended to June 2023
A business can claim an expense like car – worth up to $59,136- over one financial year rather than eight
Before the instant asset write-off scheme debuted late last year, a tradie buying a $40,000 Ford Ranger had to claim the price of the ute against their income tax over eight years.
Under this scheme, officially known as the ‘temporary full expensing’, a plumber or carpenter can claim the deduction against their income in one hit.
Tax agent H&R Block’s director of tax communications Mark Chapman said that meant a business owner who made a $200,000 annual profit, could buy a $40,000 ute and thereby reduce their taxable earnings to $160,000.
Compared to the old system of only being to deduct $5,000 per year for eight years, the new instant asset write-off would leave the claimant $35,000 better off.
There is a cap on the claimable amount – business owners can only claim a deduction for a car worth up to $59,136 before GST, and that does include delivery vans and motorbikes.
For assets other than cars, the threshold is $150,000.
Before the instant asset write-off scheme debuted late last year, a tradie buying a $40,000 Ford Ranger had to claim the price of the ute against their income tax over eight years. Now it can be spread of just one year
But there is now no limit on the overall total cost of assets that can be claimed.
The instant asset write-off can be used on a wide range of assets, from new tables and chairs for cafe owners to laptops for accountants, along with EFTPOS machines, tools and equipment.
Accountant Ben Johnston, the director of Johnston Advisory, said small business owners needed to realise they weren’t entitled to a refund of the purchase price of a new asset, but rather the purchase price is deducted from their taxable income.
‘They assume that they go and spend $40,000 on a ute and it wipes $40,000 off their tax bill – it doesn’t,’ Mr Johnston told Daily Mail Australia.
Treasurer Josh Frydenberg on Tuesday night announced the instant asset write-off scheme would be extended until June 2023, adding another year to the time limit announced in the October 2020 pandemic Budget. He is pictured on Wednesday the day after
‘All the car yards and the big retailers, they have these massive, big marketing campaigns that focus on the instant asset write-off that confuse people into thinking that they’re getting dollar-for-dollar savings with what they spend.’
Mr Johnston warned that the asset write-off should not trigger plumbers or carpenters to splurge on new utes for the sake of it.
‘If you need that equipment, it’s brilliant. I just don’t think it’s enticing enough to incur expenditure that you didn’t need to,’ he said.
Businesses that will make a loss in this financial year clearly won’t have a taxable income to deduct against, but under the extended loss carry-back provisions announced in Tuesday’s Budget they can retrospectively claim it against a pre-Covid profit.
Struggling businesses that made a loss in 2022 will be able claim that against the profits they made in the years before the pandemic
That means that losses made up to 2022-23 can be offset against the taxes paid on profits in the 2018-19 financial year.
While some employees might look at these provisions and think they can cash in by setting up a company and getting paid as a ‘consultant’ rather than a standard wage-earner, Mr Johnston said they should think again.
‘It would be very, very dangerous doing that because it triggers a whole series of other rules such as personal services income,’ he said.
‘It opens up a can of worms in terms of workers’ compensation, superannuation guarantee charges – the ATO’s got a real focus on people that are trying to be contractors but are really employees.
‘It would be a massive no no – it’s a big don’t.’