How do I get the instant asset tax write-off?

Update, October 9, 2020: Handing down the federal budget this week, Treasurer Josh Frydenberg has announced an expansion of the Instant Asset Write Off scheme (IAWO) for businesses with an annual turnover of up to $5 billion. There is no ceiling on the price of assets purchased for work purposes and the revised scheme will remain in operation all the way through to June 2022.

In his speech on October 6, the treasurer described the new parameters for the IAWO as "a game changer" that would "unlock investment" and "dramatically expand the productive capacity of the nation and create tens of thousands of jobs".

Update, March 11, 2020: In response to the coronavirus (COVID-19) outbreak, the Morrison Government has announced a $17.6 billion 'economic plan' to steer the national economy away from a recession. As part of the plan, the government is expanding the scope of the instant tax write-off from $30,000 to $150,000 for each asset.

Businesses with an annual revenue of $500 million (previously $50 million) are eligible. In total, the changes to the instant asset tax write-off will cost the taxpayer $700 million. The scheme takes place with immediate effect and closes at June 30, 2020.

Importantly, the depreciation a business owner can claim is still limited to $57,581 for a car, defined as a vehicle "designed to carry a load of less than one tonne and fewer than nine passengers".

The Morrison government has announced in its 2019 budget that the instant tax write-off for small business is now applied to assets costing up to $30,000.

It's an opportunity for business owners to select from a more diverse range of vehicles and still enjoy the tax write-off benefit of years gone by, when the purchase price of the asset was limited to $20,000.

The tax write-off is available to owners of businesses generating less than $10 million turnover a year. It's probably easiest to explain how this works by example. Let's say you are a self-employed electrician. Your small business operates out of a factory unit and the revenue the business earns has held steady around the $300,000 mark for each of the past three years.

You've been using the family car to attend jobs, but you've just picked up a big corporate client – a property manager of strata title units right across the city and suburbs. To look after this client properly, you need a reliable vehicle that can pack all your tools and material.

The added revenue may mean a much larger tax bill at the end of the financial year  (also known as EOFY) – a tax bill which could be reduced by buying the new van or pick-up you need. But rather than claim a yearly tax deduction for depreciation on the vehicle over its useful life, you want to offset the depreciation in full as a deduction in the next tax return you lodge.

The instant asset tax write-off allows you to claim this tax deduction all at once. You can deduct full depreciation of the vehicle from your tax bill during the same financial year, as long as the vehicle is priced below $30,000 and it is used or ready for use in the same financial year, subject to eligibility criteria and GST status.

For $30,000 the buyer of a new van is limited to Renault Kangoo, Volkswagen Caddy or LDV G10 while there are currently new sub-$30,000 utes on offer from Isuzu UTE, Great Wall, Ford, Foton, Mahindra and JMC, but:

• You can knock 10 per cent off the purchase price (the GST) straight away if your small business is registered with the ATO (Australian Taxation Office) for GST (as you should be able to claim this as a credit in your BAS),

• Car companies offer national fleet discounts, which can also reduce the cost of bargain-basement LCVs (Light Commercial Vehicles) below the $30,000 ceiling,

• The instant asset write-off can also apply to a used motor vehicle – if you can buy lightly used dual-cab 4x4 for under $30,000, the ATO will let you off the hook for the rate the vehicle will depreciate in coming years. That deduction will reduce the tax payable by the business.

At the end of the financial year, you sit down with your tax agent or accountant and provide all your income and each deduction in a list to be submitted with your tax return, and confirm whether you’re eligible for the instant tax write-off. If you are, lodge a tax return with the ATO and include the cost of the motor vehicle as a deduction for that financial year. Where you are not eligible for the instant tax write-off, you may instead be entitled to claim depreciation over the useful life of the motor vehicle. Note that if you claim the instant write-off, you cannot also claim depreciation of the car or light commercial vehicle.

It can't be stressed enough that the aggregated turn-over of the small business must be less than $10 million and the asset has to be already in use. The ATO treats depreciation as a cost associated with, in this case, car expenses, which can also be deductible, provided the car is used for business purposes.

On the subject of eligibility, where a company's turn-over is less than $10 million a year, but it's a subsidiary of a larger company and the total revenue (the aggregated turn-over) is in excess of $10 million, the subsidiary business may not be entitled to claim the instant asset tax write-off. These rules are complex and you should consult your tax expert for further advice.

For a small business registered with the ATO for GST, the GST-exclusive price is taken to be the cost of the asset. Alternatively, for any small business not registered for GST, the GST-inclusive amount is taken to be the cost of the asset.

Another consideration – and not one to be overlooked – is how the motor vehicle is to be used. If it doubles as the family car on weekends, or even dropping the kids at school during the week, you can’t deduct the full cost, as the ATO will base the deduction on the percentage of use that is business-related.

Where the asset is used for business and personal purposes, only the business proportion is instantly deductible; the personal proportion is not deductible.

And if, after all this, you think you may be eligible for the small business instant write-off, make sure to check with your tax professional or accountant before signing off on a new or second-hand car purchase.

Now, of course, is not just a good time to buy for the tax incentive, it's also a great time to haggle with sales staff at the dealers.

Read more about end of financial year sales at the link.