Federal Budget 2023: What is happening to the instant asset write off scheme?
The $20,000 tool tax break for tradies in this year’s budget – as popular ute write-off is axed
- Instant asset write-off for utes being axed
- Tradies can now buy $20,000 in tools on tax
Australia’s tradies will lose the right to buy a $65,000 ute and claim it back on tax in one year – but they will now be able to spend $20,000 on tools and get generous treatment from the taxman.
Treasurer Jim Chalmers is axing his Liberal predecessor’s Josh Frydenberg’s instant asset write-off program – formally known as ‘temporary full expensing’ – that ends on June 30.
This program debuted in October 2020, allowing tradies battling lockdown restrictions to buy a $59,136 ute or van and claim it back in one year rather than over eight.
This was adjusted to $64,741 in the last financial year to account for inflation, after the scheme was extended in the 2021 Budget.
Usually, small business owners can buy tools and machinery and claim it back against their taxable income over the life of the item, which can range from three years for a computer to decades for a factory machine.
But in Tuesday night’s Budget, Dr Chalmers announced a scaled-back instant asset write-off program where small businesses with an annual turnover of $10million will be able to spend $20,000 on tools or equipment – multiple times – from July 1, 2023 to June 30, 2024.
Australia’s tradies will lose the right to buy a $65,000 ute and claim it back on tax in one year – but they will now be able to spend $20,000 on tools and get generous treatment from the taxman
They will be able to write it off against their taxable income in one year, rather than having to wait for several years to depreciate it, provided these items are used or installed in the 2023-24 financial year.
Tradies can buy tools worth up to $20,000 and get a tax break
A small business with a turnover of up to $10million can buy tools and equipment worth up to $20,000 and claim it on tax in one year.
Items must be bought from July 1, 2023 to June 30, 2024.
The ‘Small Business Support – $20,000 instant asset write off’ also allows multiple items worth up to $20,000 to be claimed on tax.
Small businesses would also be instantly write off multiple assets, provided each one cost less than $20,000.
‘The Budget we present to the Australian people tonight, lays the foundations for growth by embracing clean energy, and investing in value-adding industries, people, skills, technology and small business,’ Dr Chalmers said.
‘In this Budget we back Australian small business with a $20,000 instant asset write-off.’
The program – known as the ‘Small Business Support – $20,000 instant asset write off’ program- was expected to cost the Budget $670million in 2024-25 when tradies put in their tax return for the previous financial year.
For assets worth more than $20,000, tradies and small business operators will be able to depreciate the asset by 15 per cent in the first year on their tax return, and by 30 per cent every year after that.
Small businesses will also be able to spend $20,000 on linking their heating and cooling to solar or renewable energy, upgrading to more energy-efficient fridges and induction cooktops and installing batteries and heat pumps.
These items will be able to be claimed against tax over the life of the item – as part of the Small Business Energy Incentive – provided firms making the claim have turnover of less than $50million.
This was expected to cost the tax office $260million in 2024-25.
The scheme won’t be available for electric cars, renewable electricity generation assets, capital works and equipment that is not connected to the electricity grid and uses fossil fuels like petrol.
Tradies will no longer be able to buy a $64,741 ute (Ford Ranger pictured) and claim it back on tax in one year