One of the best tax breaks for small to medium sized business is the instant asset write-off. This is a great way for businesses to acquire capital assets and obtain an immediate tax deduction.
With many businesses hesitating to invest in new equipment as a result of the coronavirus, the increased instant asset write-off is designed to provide cash flow benefits and allow these businesses to purchase the necessary equipment they require.
The instant asset write-off threshold has been temporarily raised from $30,000 all the way up to $150,000. Not only that, but businesses with annual turnover of up to $500 million, as opposed to the initial tally of $50 million, are now eligible for the write-off.
In the past, a business purchasing an asset could only write off a portion of an asset expense over several years. By deducting the full expense in a single year, you can decrease your taxable income and the tax you owe.
These temporary increases will be in place until the end of the financial year, and for an asset to qualify it will need to have been purchased between 12th March and 30th June.
What Assets are included?
Below are examples of assets that may be purchased
- Cars, vans and utes
- Plant and machinery
- Fittings and fixtures
- Computers and laptops
- Security systems
- Kitchen equipment
- Air conditioners
- Cash registers and other POS devices
What assets are excluded?
There are a small number of assets that are excluded. Find out more here.
Tips for making the most of the Instant Asset Write-Off
- Your business must be currently operating in order to be eligible, just having an ABN is not enough.
- Both new and used assets qualify.
- This tax break is not a cash hand-out, but a deduction that reduces your taxable profit.
- The $150,000 limit is worked out on a GST-exclusive basis. This means that if your business is registered for GST and claims an input tax credit on the purchase, the tax deduction is worked out net of GST
- The asset will need to be installed or used before the 30th of June in order to claim it in the 2019/20 financial year. If the asset is purchased in June, but not installed/available for use until July you lose the entitlement to claim an immediate tax deduction for the asset in the 2019/20 year.
- If the asset is used for both business and personal use, you are only able to claim for the portion you use for business. For example, if you purchase a vehicle that is used for 70 percent business purposes and 30 per cent for personal use, you are only able to claim 70 per cent of the assets value. To claim the full amount, the asset must be used for business purposes only.
- There is no limit to how many assets you can purchase, if each asset costs less than $150,000.
Purchase of a motor vehicle for business purposes – the effect of the car limit for depreciation
Edward and Edna own and run a small irrigation supplies business. On 27 March 2020 the business purchases a luxury car that is designed to carry passengers, for $80,000. The instant asset write-off threshold at the time they first use the car in the business is $150,000.
The cost of the car for depreciation is limited to the car limit at that time. As the cost of the car is above the $57,581 car cost limit for depreciation, the business can only claim an instant asset write-off of $57,581 for the year ending 30 June 2020. The business can't claim the excess cost of the car under any other depreciation rules.
They also decide to update their work ute and the business purchases a ute for $65,000 on 27 April 2020. The ute isn't designed to carry passengers (and has been set up with all the trade tools in the tray) so the car cost limit for depreciation doesn't apply. The business can claim a full deduction of $65,000 as an instant asset write-off.
More information regarding the $150,000 instant asset write-off and other support available for businesses can be found in the links below.