One of the most effective tax breaks of recent years has been the Temporary Full Expensing (TFE) scheme for businesses. Between October 6, 2020, and June 30, 2023, it’s possible to get a full deduction against profits for virtually all payments for capital assets.
This could include anything from computer equipment to a coffee machine for the office kitchen to solar panels for the office roof. The deduction isn’t a one-off; all qualifying purchases will count, without limit.
Cars are included within the scope of the scheme, so provided the car you’re interested in costs less than $60,733 (GST-exclusive), you can use the write-off to claim an immediate tax deduction.
Here are some tips and traps on buying vehicles using the small business asset write-off:
- For expensive cars, TFE can only be claimed up to that year’s car limit, currently $60,733. Note that this limit applies only to cars. A car is defined as a motor vehicle designed to carry a load of less than one tonne and fewer than nine passengers (excluding motorcycles and similar).
- For other vehicles (e.g. commercial vehicles, vans, buses, motorcycles, etc), the expensive car limit does not apply so TFE is available on the full cost. That means that a ute, for instance, with a carrying capacity over one tonne may be eligible for TFE (for purchases after October 6, 2020) regardless of the cost.
- The car limit does not apply to vehicles fitted out for use by people with a disability
- The tax break is available to virtually all businesses. Provided your turnover is less than $5 billion, you’re eligible.
- To take advantage, you need to be in business. Employees and investors (for instance, rental property owners) are not included.
- Don’t let the generosity of the tax break override your commercial instincts. This tax break is ideal if you were planning to purchase assets anyway or have a real business need to invest. But remember, there’s no such thing as free money. You have to outlay cold, hard cash in order to get the tax element back so make sure any capital purchases fit with your overall business plan. If you’re not sure whether now is a good time to make a purchase or indeed whether to make a purchase at all, have a chat to your accountant who will be able to quantify the advantages and disadvantages for you.
- Beware of private use if you’re a sole trader. To claim the full deduction, the asset has to be used wholly in your business. If there’s an element of personal use, you can still claim the deduction but it needs to be pro-rated to reflect the element of personal use. So, if you spend $10,000 on an asset that is used 50% privately, you can only claim a deduction for $5000.
For companies, a full deduction is available even where the car is used by an employee for private purposes. Fringe Benefits Tax covers those private journeys and a full deduction is available for income tax purposes.