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June is here…which means June 30th is not far away and tax time is upon us.
The Immediate Asset Write Off Scheme (IAWO) was a great way for businesses to save some money on big purchases (including cars), but the 2023-24 Federal Budget introduced significant updates that came into effect for the financial year ending 30 June.
But what exactly is an immediate asset write-off scheme? And what do the changes mean for business?
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What is the immediate asset write-off scheme?
First introduced in 2011, the Instant Asset Write-Off Scheme allows eligible businesses to claim an immediate deduction on the business part of the cost of an asset in the year the asset is first used or installed.
In other words, the work-related portion of the cost of a new car can be treated as a tax deduction, thereby reducing the business’s taxable income.
Before the program starts, businesses will be required to depreciate assets gradually over a period of several years.
The IAWO scheme provides that these same businesses receive the full tax credit at the end of the financial year of purchase/installation.
IAWO can be used for new or used assets purchased in the financial year of the write-off claim that fall below a certain price threshold.
Multiple assets can be written off up to this $20,000 threshold.
Eligibility criteria and thresholds for immediate asset write-offs have changed over time and the 2023-24 Federal Budget, announced in May 2023, includes a number of updates to the scheme.
What has changed for the financial year ending 30 June 2024?
As a result of the changes detailed in Budget 2023-24, fewer businesses will be eligible for immediate asset write-offs this tax season, and those who are eligible may not be able to claim as much as before.
At one point, businesses with a turnover of up to $500 million were eligible to use the scheme with immediate write-offs for both new and used vehicles, but that threshold has been reduced to $10 million in annual turnover.
Until 30 June 2023, the scheme allowed a piece of new equipment worth $150,000 – $65,000 for cars with fewer than 9 seats or carrying less than one tonne – to be claimed immediately.
The total amount that can be claimed is now only $20,000.
Work vehicles purchased before 30 June 2023 but delivered at the start of this financial year are subject to the new thresholds for immediate asset write-offs, and all work vehicles delivered since then fall under the same rules.
Any vehicle valued at $20,000 or more must be depreciated at 15 percent in the first year of income and 30 percent each year of income thereafter.
In the last budget detailed in May 2024, the federal government announced a 12-month extension to the immediate write-off of $20,000 worth of assets until June 30, 2025.
Why does it matter?
It is now much more difficult to write off a work vehicle in one visit.
SUVs and vans are among the most popular commercial vehicles, and none are available new for less than the $20,000 mark.
This means that businesses needing these vehicles will be forced to look to the used car market if they want to reap the benefits of the immediate asset write-off scheme.
In fact, the only new cars that fall under the threshold are the MG 3 and the Kia Picanto, both small hatchbacks that offer little in the way of tradition. However, these cars still serve the purpose of the business after becoming a company.
Businesses that choose to ignore the changes and indulge in new Ford Ranger and Toyota HiAce models will suffer a cash flow hit as a result of the tighter thresholds.
Larger businesses are now completely excluded from the scheme and must depreciate commercial vehicles over a period of three years or more.
Disclaimer: The information on this website is for general purposes only and is not a substitute for professional financial advice. CarExpert recommends that you seek independent legal, financial, tax or other advice unique to your individual circumstances.
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