Instant write-off to get a boost for business
Keeping the cash flow of your business in the positive is important to maintain healthy growth. But this can be rather tricky if you have to purchase large, essential items for your business. Luckily, the instant asset write-off, initiated by the Australian government, makes it possible for business owners to claim assets you have or are going to purchase for your business. The limits are now proposed to rise from the current value of $30,000 up to as high as $150,000. This is extremely good news for many small businesses who are in the early phase of their existence. The purpose of the instant asset tax write-off helps accelerate the speed at which you can make deductions for eligible purchases.
When am I eligible for instant asset write-off?
To be eligible for the instant asset write-off, currently you must be a small business as recognised by the Australian Tax Office. Your business must have had a turnover of less than $50 million in the last year. This is proposed to increase up as high as $500m.
The current rule is your assets must cost less than $30,000, and must be purchased and used - or installed ready-for-use - in the year the write-off is claimed. This threshold applies to each asset irrespective of whether the asset is purchased new or secondhand. Whether the threshold is Goods and Services Tax exclusive or inclusive will depend on your GST status.
If a business purchases multiple assets under $30,000, they should all qualify even if the cumulative cost exceeds $30,000. The cost of the asset includes both the amount you paid for it and any additional amount spent on transporting the asset, improving it or installing it for use.
The new $30,000 threshold applies for assets bought and/or installed between 2 April 2019 and 30 June 2020. Wacth this space though as providing the stimulus package gets approved, this threshold is proposed to rise to $150,000.
Eligible assets include:
- A vehicle used for work
- Office furniture (desks, chairs, bookshelves, cabinets, etc.)
- Computer equipment
- In-house software (software specifically designed for your business, not including off-the-shelf products or cloud-based software subscriptions)
- Mining, quarrying or prospecting rights or information
- Intellectual property (patents, registered designs, copyright, etc.)
- Eligible plant and equipment
Non-eligible assets include:
- Assets that are leased out, or expected to be leased out, for more than 50 per cent of the time on a depreciating asset lease
- Assets you allocated to a low-value assets (pool) before using the simplified depreciation rules
- Horticultural plants including grapevines
- Software allocated to a software development pool (but not other software)
- Capital works deductions. Read more here.
How do I apply?
There is no application required. The write-off is applied when you lodge your tax for the relevant year.
What about purchases larger than $30,000?
Assets that you have purchased in this tax year that are greater than $30,000 can be allocated to a pool, and then be depreciated and deducted albeit at different rates. It's best to check with your accountant or tax advisor for more information on your individual circumstances. Don't forget this is now expected to increase to $150,000 when the stimulus package gets approval.
And what about larger businesses?
Since April 2019, businesses with a turnover of between $10 million and $50 million can also use the instant asset tax write-off (previously restricted to businesses with a turnover of less than $10 million). Scott Morrison is aiming to push this even higher to businesses with an annual turnover of up to $500m. This is good news for businesses with higher turnovers that require larger equipment purchases.
Remember that the $30,000 instant asset write-off scheme means that you can reduce the amount of tax that your business has to pay, not that you get a $30,000 tax refund for each asset. If your business is structured as a company, the most you would actually get back would be the current company tax rate of 27.5 per cent.
If you need help or would like to speak with a finance expert, then why not contact us today?
This is for informational purposes only and is not financial advice. You should always consult your accountant or tax professional about the tax treatment of any finance solution you choose.