The Australian Government will provide Australian small businesses with an immediate tax write-off of the first $5,000 of any motor vehicle purchased from 2012-13.  Motor vehicles are the main capital item for many of Australia’s 2.7 million small businesses so this extra tax relief could deliver real benefits by improving cash flows and helping operators to reinvest and grow their businesses.  The remainder of the purchase cost can be transferred into the general small business depreciation pool, which is depreciated at 15 per cent in the first year and 30 per cent in later years.

This measure will add to the existing tax reforms for small businesses that will be introduced in 2012-13 that allow:

  • an immediate write-off of all assets valued at under $5,000 (up from $1,000 presently) estimated to cost $1.7 billion over the forward estimates;
  • a write-off of all other assets (except buildings) in a single depreciation pool at a rate of 30 per cent.  Currently, small businesses allocate assets to two different depreciation pools, with two different depreciation rates (30 per cent and five per cent); and
  • a reduction in company tax rate to 29 per cent for incorporated small businesses.

These tax reforms will be available to all small businesses, including sole traders and businesses operating through trusts, partnerships and companies.  The new small business instant write-off for the first $5,000 of any motor vehicle will replace the Entrepreneurs Tax Offset (ETO), which the Australia’s Future Tax System Review (AFTS) recommended be abolished because of its poor targeting and high compliance costs.