If you’re a tradie that owns your own business, the Federal Government’s temporary full expensing rules could help you drive away in a Brand-New Mazda BT-50 before tax time.
Temporary full expensing is a new scheme introduced by the Government in the 2020-21 Federal Budget to lift the claim limit on depreciating assets for business owners, and incentivise small businesses to make investments.
You can think of it like a supercharged version of the instant asset write-off scheme, which was introduced in 2015 to allow small businesses to claim the depreciation amount of a work-related purchase immediately, rather than over time.
In 2020, as the effects of the COVID-19 pandemic began to set in, the Government made a significant change: the instant asset write-off limit was increased from $30,000 to $150,000 until 31 December 2020. After that date, the instant asset write-off reduced to $1,000.
But the new temporary full expensing scheme removes this purchasing limit, and allows businesses with a turnover of up to $5 billion to claim part or all of the cost of work-related assets - like a new ute - until 30 June 2022.
Am I eligible for temporary full expensing?
If you’re a small business owner and your turnover is less than $5 billion, you can take advantage of the Government’s temporary full expensing measures.
You’ll also need to have purchased your asset after 6 October 2020, and have them ready to go by 30 June 2022.
What can I claim under temporary full expensing?
Think of it like an extension of the instant asset write-off: you can claim any depreciating asset required for your business.
These are assets like:
A new or used car
Tools or equipment
Computers or laptops.
Certain assets like some primary production assets are excluded under the measures. You can see which assets are specifically excluded from the Government’s scheme via the Australian Taxation Office (ATO) website here.
How does temporary full expensing work?
Just like the instant asset write-off, the temporary full expensing measure allows small business owners to immediately deduct the business portion of the cost of eligible depreciating assets, according to the ATO.
However, while the limit has been lifted for the cost of the asset, there are still some limits on the part of the cost you can actually claim.
For passenger vehicles, there’s a car cost limit of $59,136 for the 2020-21 financial year under the scheme.
That means if you’re a small business owner who wants to buy the ute that has it all, Brand-New Mazda BT-50, you could claim the business portion of your new ute, up to the car cost limit of $59,136.
To work out how much you’ll get back, you’ll need to calculate the cost of the business-portion of your asset in the income year you start to use it. Then, you deduct the cost of the car against your income.
For example, if you use your new ute for business purposes 75 per cent of the time, the total you could claim a deduction for in the 2020-21 income year is 75 per cent of $59,136. That’s $44,352.
If you make any improvements to your new ute, you can even claim a deduction in the income year you incurred the cost.
Can I still claim the instant asset write-off?
The instant asset write-off is capped at $150,000, but also has a car cost limit of $59,136.
However, you can only claim the instant asset write-off if you purchased a work vehicle, or another depreciating asset for your business, prior to 31 December 2020, with the intent to first use it or install it by 30 June 2021.
As of 1 January 2021, the instant asset write-off limit is down to $1,000, which will make it difficult to make a dent in your new purchase.
Instead, the Government’s temporary full expensing measure is taking over, with no limit on asset prices. However, some specific claim limits, like the car cost limit, apply. You can check out the ATO’s website to see exactly what these are.
However, for smaller purchases like tools, machinery or computers, the $1,000 instant asset write-off could be a better option.
NB: This information is a guide only. It’s important to seek your own financial advice or engage the services of an accountant before making any financial decisions as individual circumstances may vary.