Traditions will soon lose the right to write off their usage immediately as small businesses pay more taxes under a significant budget change that kicks off in a few weeks.
Treasurer Jim Chalmers has given no hint that the former coalition government’s immediate write-off measures will be expanded in the May 9 federal budget.
Under those measures – formally known as ‘temporary full costs’ – companies can pay back the full cost of a work car or van to the tax authorities in one year instead of eight years.
The cost of a vehicle is now capped at $64,741 – which covers Australia’s two bestsellers, the Toyota HiLux and Ford Ranger.
The tax scheme allowed companies with revenues of up to $5 billion a year to pre-declare the cost of office equipment such as furniture and computers in one year – with an unlimited threshold.
The same applied to tools and machines.
Traditions buying a ute only have until the end of June to claim the full cost of their work vehicle, worth up to $64,741, in just one year (pictured is a Ford Ranger dual cab ute)
Mark Chapman, H&R Block’s director of tax communications, said the end of immediate asset write-off arrangements on June 30 would make small businesses pay much more in taxes.
“A lot of companies are going to pay a lot more tax up front – they’ll still get the tax credit, but it will be spread out over several years,” he told Daily Mail Australia.
“It’s going to make a huge difference to cash flow — if you buy a capital asset in the future, you’ll have to depreciate it over its effective life.”
The temporary full spending program would revert to a “much less generous immediate asset write-down.”
“It expires on 30 June 2023 and there is no indication that the Treasurer intends to extend it, let alone make it permanent – as many corporate groups have requested,” Mr Chapman said.
Instead, according to current plans, from July 1 Small business owners with less than $10 million in revenue can immediately write off the cost of assets costing less than $1,000.
Above that level, items must be claimed for the lifetime of their use in the business, which can range from three years for a computer to decades for large production machines.
“A big pullback from all companies that can write off all asset purchases,” Chapman said.
But with government gross debt approaching $1 trillion in 2023-2024 and high inflation, Dr. Chalmers is unlikely to continue the generous provisions of immediate asset write-off in the May 9 budget.
Under those measures – formally known as ‘temporary full costs’ – tradies (stair builder in Melbourne, pictured) can declare the full cost of a work car or van to tax in one year, instead of eight years.
“The level of government debt is definitely a factor,” Chapman said.
“With the focus on challenging inflation and keeping the domestic economy robust to weather a global recession, the focus will likely be on targeted spending to help the most vulnerable.”
Mr Chapman said the immediate write-off of assets scheme was a lifeline during the worst days of the pandemic.
“In terms of helping small businesses during the pandemic, the temporary full write-off of expenses was absolutely essential – from an economic perspective, it was great to really keep all businesses afloat during the pandemic,” he said.
Ute sales have surged over the past year, despite 10 rate hikes from the Reserve Bank of Australia that pushed cash rates to an 11-year high of 3.6 percent.
The Toyota HiLux was Australia’s No. 1 seller in March, with 4,583 orders, followed by 4,508 for the Ford Ranger and 2,789 for the Isuzu D-MAX.
Mr Chapman said the $64,741 threshold was designed to prevent small business owners from buying a luxury car.
Treasurer Jim Chalmers has given no hint that the former coalition government’s immediate asset write-off measures will be extended in the May 9 federal budget
“That threshold is there to prevent taxpayers from going out and buying lavish vehicles for their businesses — they didn’t want to encourage people to go buy a BMW if a Ford or a Honda would suffice,” he said.
From July 1, the vehicle threshold would be indexed to inflation — putting it at $69,144 below the current inflation rate of 6.8 percent for February — but would have to be recovered in eight years instead of one.
Small business owners wanting to buy a car for work purposes so they could reclaim it from taxes faced longer wait times due to delays in car production, but these delays have eased over the past year.
Dr. Chalmers did not respond to a request for comment last week.
But shadow treasurer Angus Taylor said on March 28 that the lack of security was bad for small businesses.
“Australians are right to wonder what Labor will do next,” he told the House of Representatives.
Small business owners were shocked to see it buried in last year’s budget when opponents stopped the extension of immediate asset write-offs.
From July 1, a work vehicle must be claimed for eight years (pictured are Mitsubishi Triton cars that have been out of production since 2015)
“This is a big problem for small businesses. If that’s the government’s version of fine-tuning the tax system, we should all be very concerned.”
In its 2021-22 budget, the Treasury Department estimated the cost of immediate asset write-off and loss carry-forward — where a company could claim losses against profits in prior fiscal years — at $20.7 billion over three years.
In his May 2021 budget speech, Mr Frydenberg had stated that the extension of the tax measures until 30 June 2023 meant ‘a craftsman can buy a new ute, a farmer a new harvester and a manufacturer expands his production line’.
William Laird, a Toowoomba-based agribusiness specialist and director of the accounting group RSM Australia, said supply constraints had made it difficult for farmers to benefit from the immediate write-off of assets.
“The industry was hoping for an extension of the immediate asset write-off, but the budget has not addressed this measure and therefore it is likely to end in 2023 as planned,” he told Farmonline.