Tax Implications for Cars after Temporary Full Expensing

Temporary Full Expensing (TFE) was introduced by the Australian Government in 2020 to enhance business investments and stimulate economic growth post-pandemic. The amendment to normal depreciation rules allowed eligible businesses to instantly deduct the full cost of an asset in the year it was purchased instead of receiving a deduction over the asset’s useful life.

However, the scheme came to an end on 30 June 2023.

Cars and Temporary Full Expensing

Temporary Full Expensing provided businesses with an immediate deduction for 100% of eligible depreciating asset costs, including vehicles.

With the conclusion of TFE, businesses are no longer able to claim an immediate deduction for vehicles purchased after 30 June 2023. This includes where a deposit was paid to secure a vehicle, but the vehicle was delivered or improved after 30 June.

Tax Implications for Cars after June 30

From 1 July 2023, depreciation thresholds revert to the previous rules – that is, assets will be written off over their useful life.

Additionally, there have been increases in other car-specific thresholds for the 2023–24 financial year as follows:

Income Tax:

• The car limit for 2023–24 is $68,108.
• This is the maximum value used for calculating car depreciation for business use.

Goods and Services Tax (GST):

• For cars exceeding the car limit, the maximum GST credit claimable is one-eleventh of the car limit, which amounts to $6,191 in 2023–24.
• GST credits cannot be claimed for luxury car tax (LCT) paid during the purchase of a luxury car, regardless of business use.

Luxury Car Tax (LCT):

• The LCT threshold is $76,950.
• For fuel-efficient vehicles, the LCT threshold is $89,332.

Cars and Instant Asset Write-Off

There is some potential relief in the form of the Instant Asset Write-Off. The government announced as part of the 2023-24 Budget that the instant asset write-off threshold will be increased to $20,000, from 1 July 2023 until 30 June 2024.

This measure is not yet law.

Once passed, this means that the maximum value for claiming new equipment is $20,000. This will likely exclude most new vehicles purchased from dealers. Used cars within the threshold are eligible if purchased as work vehicles.

As with all types of depreciation, the vehicle must be purchased and used in the year the write-off is claimed.

This does not mean that any vehicle purchased over $20,000 will not be depreciated – just that it will be depreciated using the normal depreciation rules.

It is also important to note that the increased instant asset write-off is only available for businesses with an annual turnover of less than $10 million.

For a clear understanding of how the Instant Asset Write-Off scheme and other tax incentives impact your car-related business and asset acquisitions, please feel free to get in touch with us.