Tradies will soon lose the right to instantly write off their utes as small businesses pay more tax under a significant Budget change due to kick in within weeks.
Treasurer Jim Chalmers has given no hint that the former Coalition government’s instant asset write-off measures will be extended in the May 9 federal Budget.
Under those measure – formally known as ‘temporary full expensing’ – tradies can claim the whole cost of a work ute or van on tax in one year, rather than over eight.
The cost of a vehicle now capped at $64,741 – which covers Australia’s two bestsellers, the Toyota HiLux and Ford Ranger.
The tax arrangements also allowed businesses with a turnover of up to $5billion a year to claim the cost of office equipment like furniture and computers upfront in one year – with an unlimited threshold.
That also applied to tools and machinery.
Tradies who buy a ute only have until the end of June to be able to claim the entire cost of their work vehicle, worth up to $64,741, in just one year (pictured is a Ford Ranger dual cab ute)
H&R Block director of tax communications Mark Chapman said the end of the instant asset write-off arrangements on June 30 would see small businesses pay a lot more tax.
‘Many businesses are going to be paying much more tax upfront – they’ll still get the tax relief but it will be spread across several years,’ he told Daily Mail Australia.
‘It will make an enormous difference to cash flow – going forward, if you acquire a capital asset, you need to write that off over the course of its effective life.’
The temporary full expensing program would revert to a ‘far less generous instant asset write-off’.
‘It’s due to expire on 30 June 2023 and there are no indications that the Treasurer plans to extend it, let alone make it permanent – as many business groups have called for,’ Mr Chapman said.
Instead, under current plans, from July 1, small business owners with a turnover of less than $10million will be able to immediately write off the cost of assets costing less than $1,000.
Above that level, items have to be claimed over the life they are used in the business, which can range from three years for a computer to several decades for major production machinery.
‘A big comedown from all businesses being able to write off all asset purchases,’ Mr Chapman said.
But with gross government debt approaching $1trillion in 2023-24, and inflation on the high side, Dr Chalmers would be unlikely to continue the generous provisions of the instant asset write-off in the May 9 Budget.
Former Liberal treasurer Josh Frydenberg in the May, 2021 Budget extended the instant asset write-off scheme – formally known as ‘temporary full expensing’ – until June, 2023 (pictured are Sydney tradies)
‘The level of government debt, absolutely, is a factor,’ Mr Chapman said.
‘With the focus on challenging inflation and keeping the domestic economy in robust shape to deal with a worldwide downturn, the focus is likely to be on targeted spending to help the most vulnerable groups.’
Mr Chapman said the instant asset write-off scheme was a lifeline during the worst days of the pandemic.
‘In terms of helping small businesses during the pandemic, the temporary full expensing write-off was absolutely vital – from an economic perspective, it was tremendous at keeping all businesses really afloat during the pandemic,’ he said.
Ute sales have been increasing during the past year, despite 10 interest rate rises from the Reserve Bank of Australia that have taken the cash rate to an 11-year high of 3.6 per cent.
The Toyota HiLux was Australia’s No. 1 seller in March, with 4,583 ordered, 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 stop small business owners from buying a luxury car.
‘That threshold is there to stop taxpayers going out and buying lavish vehicles for their business – they didn’t want to encourage people to go out and buy a BMW when a Ford or a Honda would do,’ he said.
Jim Chalmers has given no indication he will extend the instant asset tax write off
From July 1, the vehicle threshold would be indexed to inflation – taking it to $69,144 under the present 6.8 per cent inflation rate for February – but this would have to be claimed back over eight years rather than one.
Small business owners hoping to buy a ute for work purposes, so they can claim it back on tax, had to contend with longer waiting times due to car production delays, but these delays have eased during the past year.
Dr Chalmers did not respond to a request for comment last week.
But shadow treasurer Angus Taylor on March 28 said the lack of certainty was bad for small business.
‘Australians are right to be wondering 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 those opposite were ending the extension of the instant asset write-off.
‘This is a big deal for small businesses. If that is the government’s version of refining the tax system, we should all be deeply worried.’
In the 2021-22 Budget, Treasury put the cost of the instant asset write-off and the loss carry back provision – where a business could claim losses against profits in previous financial years – at $20.7billion over three years.
In his May 2021 Budget speech, Mr Frydenberg had declared the extension of the tax measures until June 30, 2023 meant ‘a tradie can buy a new ute, a farmer a new harvester and a manufacturer expand their production line’.
William Laird, a Toowoomba-based agribusiness specialist and a director of accounting group RSM Australia, said supply constraints had made it hard for farmers to have taken advantage of the instant asset write-off.
‘The sector was hopeful of an extension to the instant asset write-off, however the Budget failed to address this measure and so it is likely to finish up in 2023 as planned,’ he told Farmonline.
