Is using the instant asset write-off right for your small business?
Instant asset write-offs are a great option for Aussie small business owners. However, it is important to remember that the instant asset write-off is not a cash handout. It is a reduction of your taxable profit by that amount. You will have to spend the money up front first and it has to be a business related expense.
The benefit of the asset write-off being ‘instant’ is that you can potentially claim the entire amount for the current financial year, rather than over the course of multiple years as depreciating value. Just beware, if it is not an asset you would have purchased anyway, it may actually turn out to be an unnecessary expense eating into your bottom line. Alternatively, if you had already intended to make a significant asset purchase for your business, the instant asset write-off scheme is a boon.
So long as your business has an aggregated turnover of up to $5million, you may be eligible for the benefit. Depreciating assets such as technology and equipment also fall under the umbrella of this scheme. In any event, it is certainly worth consulting your qualified accountant prior to making a significant asset purchase and assessing the implications for YOUR small business.
Why get a car?
The instant access write-off scheme can be used to purchase equipment for your business – including the purchase of vehicles for business use. Purchasing a car can be expensive at the best of times, so the instant access write-off scheme is a great time to secure substantial tax benefits on your next car purchase. Depreciating assets can also be second-hand so it’s possible to purchase a used car using the scheme.
For small businesses where your car really is integral to your work and used to generate your income, using the instant asset write-off on the purchase of your vehicle can be especially useful – particularly if it is 100% for business use (for example a tradie’s ute with toolbox fixtures). You potentially get to claim the entire amount now, rather than over the course of years – and help reduce your tax bill significantly for THIS year, at a time when cash flow may be most important.
Can I get a car if it’s used for both work and personal use?
Many small business owners do use their cars for both personal and business use. For the purposes of the instant asset write-off, vehicles CAN be used for a mix of business and personal use, but you will need to calculate the percentage of which the vehicle will be used for business purposes to determine how much you are eligible to claim when you make your purchase.
What if you need finance?
It is not uncommon for small business owners to need to obtain finance to purchase a car. With interest rates historically low, now can be a good time to borrow money from a lender for any purchase. Having finance on a vehicle purchase won’t impact your eligibility to claim the instant asset write-off scheme.
Don’t hesitate if you want to benefit from the purchase of a car
It’s important to realise that the Instant Asset Write-Off Scheme is due to come to an end shortly. Items need to be purchased by December 31, 2021. This scheme offers great savings for small business owners, and ever since its introduction, popular models of cars for small business owners have been hard to secure. This is why it’s crucial to do your car research and start making enquiries with car dealerships about the vehicle you are interested in if you want to leverage the instant asset write-off scheme before it finishes.
“What business owners don’t understand is between the supply chain issues of 2020 and the instant write-off, the typical tradie cars like the Hilux and HiAce are walking off the lot. Everyone is chasing one right now. So if you wait until the end of the financial year, you could have real issues qualifying for instant write-off. If you’re after a hatch or sedan, select cars are in HIGH demand there too – my one key piece of advice is to get in well BEFORE EOFY”
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