In light of recent legislative changes, we have updated our original blog on the instant asset write-off (posted on 27/02/19). Read on to find out if your business could benefit from these changes.
Are you aware of the instant asset write-off?
Many Australian small businesses are under-utilising this Federal Government initiative which can reduce your income tax by thousands of dollars. Here’s everything you need to know about the instant asset write-off and how to use it to benefit your business.
What is the instant asset write-off?
The instant asset write-off initiative is designed to encourage small business success. The scheme originally allowed for businesses with a turnover of $10 million or less to claim a tax deduction on any assets purchased worth up to $20,000. However, recent legislative changes now allow medium-sized businesses with annual revenue up to $50 million to access the scheme, and the cap has been increased to $30,000 per asset. These new rules will be in place until 30 June 2020.
Currently, businesses which purchased assets ‘first used or installed ready to be used’ before budget night (2 April 2019) will only be able to claim up to a cap of $25,000, but eligible assets purchased after that point will qualify for the $30,000 cap.
What kind of assets can I buy?
Any assets for your business such as vehicles, tools and office equipment can be claimed under the instant asset write-off scheme. This list below gives you a more comprehensive idea of what kind of assets are included:
- Work vehicles
- Tradie tools and machinery
- IT hardware (desktop computers, printers, photocopiers)
- Office, studio and shop furniture and fittings
- Equipment storage (sheds and storage containers)
- Kitchen equipment
- Air conditioners
Note that this isn’t an exhaustive list. Check with your tax accountant for a full list of eligible assets. Also, remember not to spend money simply for the sake of a tax break, keep a strategic eye on the assets you purchase to ensure the investment will lead to greater profitability and productivity going forward.
How do you qualify?
You are eligible to use the instant asset write-off and claim an immediate deduction for each asset (new or second hand) costing less than $30k if:
- Your business has a turnover of less than $50 million
- The asset was first used or installed ready for use in the income year you are claiming it in
- You are using the asset solely for business purposes
- You are using the asset for a percentage of business purposes
The benefits of the instant asset write-off
The instant asset write-off is an encouraging sign that the government wants to support small businesses. This latest extension to the scheme is expected to benefit around 3.4 million businesses employing around 7.7 million workers, with total savings to SME’s exceeding $700 million in the next few years. However, in order to get maximum value from this incentive, you have to make sure you’re claiming correctly.
Here are some things to look out for:
- Don’t ‘double dip’ – you can’t claim the write-off and then depreciate the asset in later tax years
- Assets must be installed or ready to use in the same financial year they were purchased – you can’t claim for items that will be used at a later date
- You can only claim the business proportion of the asset – for example:
An electrical company purchases a secondhand ute for $29,500 with equipment finance. The business owner estimates the ute will be used 80% for business purposes and 20% for personal use. When completing the tax return the amount claimed is $23,600 ($29,500 x 80%).
The instant asset write-off is extended on a year-by-year basis so there are no guarantees it will always be around, despite several groups calling for it to be permanent. If your small business is planning on purchasing a major asset under $30,000 then now’s the time to do it, so you can write it off in this year’s tax return.
If cash flow is an issue then look at using equipment finance to fund the purchase. If your business cash flow supports regular loan payments, then you should go ahead and take advantage of the instant asset write-off. A short-term business loan can really help to unlock this tax break so you can use it to its full potential.