Lifting the Veil off the 100% Instant Tax Write off
When you hear "100% instant tax write-off," it typically refers to a tax provision that allows you to deduct the full cost of certain business assets in the year of purchase, rather than depreciating them over several years. This provision is often associated with accelerated depreciation methods.
Don't get this confused with getting 100% off the cost of your asset when calculating your taxable income vs 100% off your tax bill. There is a huge difference.
When they hear "100% instant tax write-off," Many People think that if they spend $50,000 on a new car, that they will literally get $50,000 off their tax bill. This is NOT technically correct, and has resulted in a lot of confusion, incorrect advice and regret.
What does the 100% Instant Tax Write off actually mean?
You get to write off that asset instantly, all in ONE financial year, rather than having to depreciate it and write it off over a number of years. (Typically, like a car would usually be written off over 8 years according to the ATO's depreciation guide). During 2023, you can potentially write it off all in one year.
"100% instant tax write-off," means that you don't have to wait for the tax benefit, you can literally claim it all in one year. (Mind you, can we say that, depending on your personal and financial situation, writing it all off in the first year is actually NOT always the most beneficial for tax purposes. (Just saying...) But that's a topic for another day.
How does the 100% Instant Tax Write off actually work?
Well, lets use this example.
If you trade as a company, and your business's taxable income is $120,000. As a base rate entity, this means that your tax rate is 25%. (If you are a sole trader your tax rate may be different, but the principle is still the same)
So on a taxable income of $120,000 your tax as a base rate company will be approximately $30,000. ($30,000 x 25%)
So if you pay $50,000 on a new work vehicle, and lets assume you use that vehicle 100% for business purposes, rather than having $120,000 taxable income, your taxable income would be reduced by 100% of the new asset price (vehicle).
So now your taxable income is now only $70,000 ($120,000 less $50,000)
Now, if you calculate your tax on $70,000, your tax is $17,500 ($70,000 x 25%)
So to spend $50,000 on a work vehicle, used 100% for business purposes, using the 100% instant tax write off, your savings is the difference between the tax of $30,000 and $17,500 which is a savings of $12,500.
For more information, or if you would like us to prepare and lodge your tax this year, please get in touch with us.
This articles intention is to inform rather than advise and is based on legislation at the time. Each Taxpayer’s circumstances vary so we strongly recommend that you discuss this information with your Tax Agent, Accountant or Bas Agent before implementation. If you take, or do not take action as a result of reading this article, we accept no responsibility for any financial loss incurred. This is general advice only.
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