Car industry welcomes asset write-off reform

The instant asset write-off scheme introduced earlier this year as an economic response to COVID-19 has received a boost in this week’s federal budget, with the government extending eligibility, asset value and timeframe of the incentive.

Under the new ‘temporary full expensing’ measure, businesses with a turnover of up to $5 billion – which covers about 99 per cent of businesses in Australia – will be able to deduct the full cost of new, eligible, depreciable assets of any value in the year they are first used or installed ready for use.

That means that a business with a turnover of $15 million a year can make an investment worth $500,000 and write it off completely in that first year.

Full expensing also applies to eligible second-hand assets for small and medium-sized businesses with aggregated turnover of less than $50 million.

For businesses with a turnover between $50 million and $500 million, second-hand assets under $150,000 can still be written off completely under the enhanced instant asset write-off scheme.

The automotive industry has supported the ‘temporary full expensing’ measure and other initiatives announced by the government, which include bringing forward tax cuts, creating new apprenticeship positions and encouraging the employment of younger people in general.

It has not, however, seen the abolition of the oft-criticised luxury car tax or import tariffs on vehicles from countries where a free-trade agreement with Australia is not in place.

“We hope the measures announced in the budget will be a shot in the arm for the industry, which had been struggling even before the pandemic and has now experienced 30 months of consecutive falling sales,” said Australian Automotive Dealer Association (AADA) CEO James Voortman.

“The government is encouraging businesses to invest and employ more people while bringing forward tax cuts will give consumers more disposable income which will trickle down into the economy.

“This budget acknowledges that business investment will be a crucial part of Australia’s economic recovery through the newly announced temporary full expensing coupled with the instant asset write-off.

“[But] once again, we are disappointed the government has resisted removing some of the legacy automotive taxes for an industry that is doing it tough.

“The import tariff and the luxury car tax are protecting a domestic manufacturing industry which no longer exists and their removal could benefit consumers and retail businesses,” he said.

The ‘temporary full expensing’ measure is available from 7.30pm on October 6, 2020 until June 30, 2022.

The cost of improvements made during this period to existing eligible depreciable assets can also be fully deducted, regardless of whether they are bought before or after the budget announcement.

The instant asset write-off incentive allowing eligible businesses to write off up to $150,000 in eligible asset purchases will also be extended to June 30, 2021, following an initial extension earlier this year.

Federal treasurer Josh Frydenberg described the ‘temporary full expensing’ incentive as “the largest set of investment incentives any Australian government has ever provided”.

“It is a game changer, it will unlock investment, it will dramatically expand the productive capacity of the nation and create tens of thousands of jobs,” he said.

“A trucking company will be able to upgrade its fleet, a farmer will be able to purchase a new harvester and a food manufacturing business will be able to expand its production line.

“This will boost the order books of the nation and small businesses will buy, sell, deliver, install and service these purchases.

“Every sector of our economy, every corner of our country, will benefit. This is how we will get Australians back to work.”