18 May Tips for Claiming the Small Business Instant Asset Write-Off
The instant asset write-off scheme has always been a fantastic tax break for small businesses to take advantage of. Recently, however, the Federal Government increased the asset write-off threshold considerably, in order to relieve some of the financial strain caused by the COVID-19 pandemic. To assist with your preparations for EOFY, we wanted to share our tips for claiming the asset write-off for your business.
The details of the $150,000 Instant Write-off
The instant asset write-off allows businesses to purchase capital assets and obtain a tax deduction immediately. Alongside the increased threshold from $30,000 to $150,000 (net of GST), access to the tax break has been expanded to include all businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020.
This opportunity will apply to all purchases made from 12 March 2020 to 30 June 2020 where the assets are used, or installed ready for use, in the business by 30 June 2020.
Please be aware that you must be an active, trading business to take advantage of the tax break, simply having an ABN will not entitle you to the benefits.
Examples of tax-deductible items
There is an enormous list of assets which can be purchased, but here are just a few examples:
- Cars, vans, utes, and trailers
- Fittings and fixtures
- Plant and machinery
- Cash registers and other POS devices
- Computers, printers and laptops
- Security systems
Things to consider when utilising the $150K instant asset write-off for your business
To ensure you make the most of, and more importantly, stay compliant with tax rules and regulations around this incentive, we’ve outlined several tips and considerations. If you would like to discuss options for your business in further details, reach out to our team for assistance.
It’s not a cash hand-out
The instant asset write-off is not a cash hand-out for business. It is a deduction that reduces the business’ taxable profit. You will still have an often considerable part of the cost to outlay, so don’t purchase anything you don’t specifically need and use for your business. You can find several examples of this on the ATO website here.
It can apply to both new and used assets
The instant write-off can apply to both new and used assets. As long as the assets are first used or installed by the business within the timeframe of 12 March – 30 June, 2020.
This is really important to note as if a business purchases an asset just before the end of the financial year, such as the 29th of June, however it is not able to be used until after 1 July, the business won’t be able to claim the instant tax deduction but instead use the ordinary rates of depreciation.
Assets are calculated on GST exclusive basis
The $150,000 asset write-off limit is calculated 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.
Assets must be between $1000 and $150,000 to be eligible
The business can claim a deduction for each asset which costs over $1000 and less than the claimable threshold of $150,000. Any asset purchased over this amount will continue to depreciate on a yearly basis, however the Government COVID-19 Stimulus package includes a 50% accelerated depreciation rate for assets in the 20/21 financial year. Click here for more information on this stimulus package and how it can impact your business.
Make sure you prorate the deduction for private use
Much like any tax deduction, if the asset is not used 100% for work purposes, the reduction must be reduced to account for personal use. For example, if you are a sole trader with a work vehicle, but you also use it as your personal car, your deduction will need to reflect the percentage it is used for business and personal use. If you are operating as a company or within a family trust, the deduction is not prorated, but instead fringe benefits may apply to any private use of the asset by an employee.
If you would like to discuss the financial situation of your business leading up to EOFY, talk to our team at Conrad Carlile. As experts in all areas of accounting, taxation and business advice, we pride ourselves on customer service and helping our clients get the best absolute outcome for their situation. Contact us today on (07) 3871 1522, or complete the online contact form and we will be in touch to discuss your requirements.