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Tax-free boost for buyers and sellers

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Businesses are moving to take advantage of the expanded instant asset write-off scheme in a bid to upgrade equipment and reduce tax bills.

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The scheme was extended in March, increasing the instant asset write-off threshold from $30,000 to $150,000 per item for businesses with aggregated annual turnover of less than $500 million – up from the previous $50 million turnover limit.

The Federal Government this month announced it would keep the threshold in place until at least the end of December.

The extension to $150,000 has brought more expensive items such as commercial vehicles into play for a full write-off for the first time, providing a much-needed boost for car dealerships across Australia.

CMI West Terrace is the state’s largest Toyota dealership and also sells Mercedes, Lexus and Suzuki vehicles.

Branch manager Adam McCallum said the tax write-off scheme had helped deliver a much-needed increase in inquiries since about the second week of May.

He said the dealership sold more than 260 new vehicles in May with strong demand for commercial vehicles such as vans, utes and SUVs.

“March and April were very quiet for us and most of our staff were only working 2-3 days a week through that period but since early-to-mid-May most departments have been back to a full working week, which is great for our staff,” McCallum said.

“May ended up being one of our strongest inquiry months on record and we’ve seen that pretty dramatic spike in inquiries continue through to now.”

“I would say that at least 75 per cent of our inquiries at the moment from small to medium-sized businesses are about the asset write-off – the accountants are definitely talking to their customers to highlight the benefit of the offer if they are in a position to take advantage of it.”

Commercial vehicles can be written off up to the full $150,000 but passenger cars are still subject to the luxury car tax, which starts at $67,525 for the 2019/20 financial year.

One issue facing the new car industry as well as many other sectors is a stock shortage following disruptions to imports and a reduction in orders from manufacturers during the COVID-19 shutdown.

McCallum said extending the scheme until the asset write-off scheme until the end of the year would also help to keep momentum going beyond June 30 and allow vehicles to be delivered within the timeframe.

“We’re going to see a very tough July and August in terms of the number of vehicles we’re going to be able to deliver with some recovery in September and October,” he said.

“Selling them is the first part of the journey but for our customers and for our business it doesn’t really count for anything until we deliver them so the extension of the offer to the end of the year was a relief.

“At least now we can take orders on those models and while they won’t count for this financial year we should be able to supply them by the end of the calendar year and it will also give us a half decent start to the new financial year.”

Sales of smaller items eligible for the threshold such as computing and electrical equipment are also booming and have contributed to sales spikes for major retailers.

This month JB Hi-Fi announced second half sales at its JB-Hi-Fi and The Good Guys stores were up 20 per cent on the previous year following a strong April and May.

Harvey Norman also reported a 17.5 per cent year-on-year increase in sales from January 1 to May 31.

According to Australian Bureau of Statistics released on Friday, retail trade rebounded a record 16.3 per cent in May, following a 17.7 per cent plunge in April.

The May figures beat economists’ expectations and exceeded even pre-COVID levels from both February and a year ago.

BDO Tax Partner Tim Sandow said the increase in the threshold to $150,000 and the extension until the end of the year not only helped businesses reduce their tax but it also had a role to play in helping retail get back on its feet.

“Everything is about stimulating the economy at the moment – JobKeeper is about putting money in people’s pockets and things like this are about getting businesses to actually spend money as well.

“Extending the write-off was also about helping people who couldn’t buy out of stock items before 30 June.

“If you can afford it and you need to upgrade something then there’s a great opportunity to do that before 30 June to reduce your tax.”

Sandow acknowledged that some businesses were doing it tough and may not have the cash to be buying assets at the moment.

But he said the extension of the scheme until the end of the year would allow them to delay purchases until business picked up in the second half of the year.

“A lot of those businesses will have a tax bill to pay in July and there might be an opportunity to look at how much that tax payment should be, how they are tracking compared to last year and how they can reduce that bill,” Sandow said.

“Businesses should also be looking at the amount of bad debt they are carrying because you have to write them off before 30 June to get a tax deduction for them so there could be an opportunity to do that.

“Particularly in this sort of environment there is a risk of more debts going bad than what there might be in a normal year.”

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