Tips this tax season: Claiming the $150,000 instant asset write-off
The instant asset write-off is typically one of the more utilised tax breaks by small and medium-sized businesses, as it provides you with the asset you want along with an immediate tax deduction.
As most of you likely know, a stimulus package was put in place by the government to help combat the economic impact of COVID-19, which saw the instant asset write-off threshold boosted from $30,000 to $150,000 per asset, with this applying to businesses turning over up to $500 million annually.
It is important to remember this change will apply to assets acquired from 12 March 2020, until 30 June 2020 that have been used or are installed and ready to use. From 1 July 2020, these rates will be brought down, with the threshold for small businesses reduced to $1,000 for business with an annual turnover of less than $10 million.
How to make the most of the instant asset write-off
Whether you are considering purchasing vehicles, fixtures and fittings, computers, security systems, machinery, point-of-sale technology, or another form of an asset, understanding some of the key rules of instant asset write-offs will help position you to reap the rewards of deductions and avoid any unwanted surprises come tax time.
Firstly, an instant asset write-off is intended to be a tax break to reduce your taxable income and will not increase your liquid cash. For example, if you operate a small business and purchase a vehicle for $50,000, you will receive a deduction equivalent to the current tax rate which for small businesses is 27.5%. in this situation, your tax will be reduced by $1,375, resulting in a net outlay of $48,625.
Also, each asset you purchase can be deducted if the cost is below the $150,000 threshold. For example, if you purchase a vehicle for $50,000, and machinery for $60,000 between 12 March 2020 and 30 June 2020, both assets will qualify as instant tax deductions for the 2020 financial year as both cost under $150,000.
If your business intends on purchasing an asset just before the end of the financial year, it needs to be available for use before 30 June or you will not be able to claim an instant asset write-off for the item in the 2020 financial year. For example, if you purchase new desktop computers for your business on 26 June and have them installed in July, you will be ineligible for the deduction.
Another point to think about (particularly for sole traders) is that only the work-related portion of an asset can be claimed. For example, if you own a vehicle which is used for both personal and work-related purposes, you will receive a deduction for the work-related portion only. However, this doesn’t apply if you operate as a family trust or company. If for example your company allows private use of company cars, you will likely have FBT applied instead.
Finally, if you purchase a passenger car as an asset, the write-off available is limited to $57,581. If the cost is in excess of this threshold, you will not be able to claim an immediate deduction, and the excess cannot be claimed under any depreciation rules.
If you would like more information on how an instant asset write-off can help improve your taxation, please get in contact with us at AWT Accountants.