What happened to the instant asset write-off?

The end of the financial year (EOFY) in 2023 was the last opportunity to take advantage of the federal government’s full-fat tax break for the purchase of cars priced up to $64,741, and trade vehicles priced higher.

In 2024, temporary full expensing (TFE) was canned, and the instant asset write-off (IAWO) scheme was reintroduced in its place, but capped at just $20,000.

That’s a far cry from those heady days of 2020 and 2021, when the cap for the IAWO was $150,000 for utes and vans, and there was no effective cap on TFE. That was a response to the COVID-19 pandemic, when the economy was grinding to a halt.

The good news is that IAWO is not limited to just one asset. If your business chooses to buy multiple assets, the business can benefit from IAWO for each asset costing under $20,000. In other words, a business could buy several used cars and light commercial vehicles, and benefit from the IAWO, provided each vehicle costs less than $20,000 to purchase.

Treasurer Jim Chalmers announced in his budget speech for 2024/25 that the IAWO will continue unchanged, which means it will remain capped at $20,000, and will be available to businesses earning up to $10 million during the financial year.

It’s important to note that if the vehicle purchased is used for private purposes, the IAWO benefit will be calculated from the business use alone. If you purchased a micro hatch for $18,000 for your cleaning business, but you also use the car to pick up groceries after hours, only that percentage of use that is business-related can be claimed. If the car is used for business 80 per cent of the time, the benefit will be calculated from 80 per cent of $18,000.

The ATO (Australian Taxation Office) has clarified eligibility and applicability for the IAWO, which offers businesses an immediate deduction in full for an asset, rather than incremental deductions for depreciation over a period of consecutive years.

According to the ATO, a ‘second element’ can be claimed for an upgrade to an asset for which you claimed the IAWO in a previous year.

If you order an upgrade for your vehicle – a lockable tonneau for your ute, for example – the upgrade is the ‘second element’ for which you can claim the IAWO. But you can’t claim the second element in the same financial year as the original vehicle purchase. You have to wait for the new financial year to commence.

The ‘first element’ is the price of the vehicle, which is defined as any vehicle that carries up to one tonne and fewer than nine passengers. For conventional depreciation, the price is limited in 2024-25 to $69,674. Naturally, this is irrelevant in claiming the IAWO.

For businesses turning over less than $10 million a year, the price of any asset purchased must be limited to no more than $20,000 for the business owner to claim the IAWO. That restricts the buyer to used tradie vehicles. These would be typically Chinese utes and vans as recent as three years old.

In the case of a $30,000 or $40,000 dual-cab, IAWO does not apply. Even in the event that the vehicle is used for family duties after hours half the time, that won’t reduce the depreciable sum to $15,000 or $20,000, respectively.

The ATO recommends that assets costing the business more than $20,000 should be placed in the ‘small business pool’ to claim a 15 per cent depreciation on that asset at the end of the financial year.

Tax time for vehicle purchases

The $20,000 cap certainly limits a business owner’s aspirations, but a plumber or electrician employing a new staff member to help with an expanding workload as the business grows could purchase an older but still tidy work ute for below the $20K cap.

For further information on the Instant Asset Write-Off – and how it will affect your business – read more at the Australian Taxation Office’s web page on the subject, and naturally check with your accountant as well.

This article contains general information only. Seek independent financial advice that considers your own circumstances.

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