Instant asset write-off

15 Nov

Investing in your business is important for its future – in terms of growth and success.

But some of these investments can be costly.

We may have found a solution that helps you buy the equipment your business needs now to secure its future growth!

Really?

Yes!

The instant asset write-off lets your business immediately expense your capital and equipment purchases – that means the cost of the equipment comes off your bottom line, instead of depreciating it over several years.

How good does that sound?

Let’s explore how it works and if your business and asset purchase/s are eligible.

Overview:

What is the instant asset write-off?
What is the threshold for the instant asset write-off?
What can your business claim under the instant asset write-off?
How do I claim the instant tax write-off?
What’s the purchase threshold for the Instant Asset Write-Off?
What’s Temporary Full Expensing?
What happens if I make a purchase greater than an instant asset write-off amount?
FAQS

What is the instant asset write-off?

The instant asset write-off is a tax incentive in Australia that allows small businesses to claim an immediate tax deduction for the cost of new assets that they purchase, up to a certain value.

The incentive applies to assets that are used for business purposes, such as plant and equipment, vehicles, and software.

Keep reading as there are a few eligibility criteria which you will need to be aware of.

What is the threshold for the instant asset write-off?

The Australian Taxation Office (ATO) has temporarily increased the threshold for the instant asset write-off to $150,000 for small businesses with an aggregated turnover of less than $5 billion, for the period of 12 months ended 30 June 2022.

What exactly does this mean?

It means your small business can claim an immediate tax deduction for the cost of any new assets that you purchase, up to $150,000 per asset.

The asset must be used for business purposes and be first used or installed ready for use between 7:30 pm (AEDT) on 6 October 2020 and 30 June 2022.

What can your business claim under the instant asset write-off?

Assets that are used for business purposes, such as:

Plant and equipment: This includes items like machinery, tools, and office equipment.
Vehicles: This includes cars, trucks, and other vehicles used for business purposes.
Software: This includes computer programs and applications used for business purposes.
Assets that are considered as depreciating assets under the tax act, like furniture, fittings, appliances, etc.

It’s important to note that the Instant Asset Write-Off is only available for assets that are new and not for second-hand assets.

Before making a large asset purchase, we recommend you check with your accountant or the Australian Taxation Office to make sure your asset is eligible.

How do I claim the instant tax write-off?

To claim the Instant Asset Write-Off, your Australian small business can follow these steps:

Determine your eligibility:

Make sure that your business is eligible for the Instant Asset Write-Off by checking that you meet the criteria for turnover and that the assets you wish to claim are new and used for business purposes.

Keep records:

Keep records of the assets and their cost, including invoices, receipts, and other documentation to support your claim.

Claim the deduction:

In your business income tax return, claim the cost of the assets as a deduction in the income year that the assets were first used or installed ready for use.

Provide details of the assets in the tax return:

In your income tax return, report the assets that are eligible for the Instant Asset Write-Off and the cost of each asset.

Lodge the tax return:

Lodge your income tax return with the ATO by the due date, which is typically 28 February for companies.

What’s the purchase threshold for the Instant Asset Write-Off?

Now that we understand the type of assets your business can purchase, let’s have a look at the purchase price threshold for assets.

The purchase threshold for the Financial year 2022-23 is $150,000 per new asset.

What’s Temporary Full Expensing?

Both the instant asset write-off and temporary full expensing are intended to encourage small businesses to invest in new assets, which can help to improve productivity, competitiveness, and overall economic growth.

However, they work in slightly different ways.

The instant asset write-off allows your eligible small business to claim an immediate tax deduction for certain assets they purchase, up to a certain threshold limit. The threshold limit for the instant asset write-off is $150,000 and has been extended until 30 June 2022.

Temporary full expensing, also known as “Temporary Loss Carry Back” (TLCB) is a scheme that allows eligible businesses to offset tax losses against previous profits, instead of carrying them forward to offset future profits.

It’s a temporary measure that allows eligible companies that are carrying tax losses from the income years 2019-20 or 2020-21 to offset them against their profits from the 2018-19 or later income years.

Your accountant would be best positioned to work through both these scenarios and their effect on your business.

What happens if I make a purchase greater than an instant asset write-off amount?

If you make a purchase that is greater than the current threshold for the Instant Asset Write-Off (currently $150,000), unfortunately, you will not be able to claim the entire cost of the asset as an immediate deduction in the same income year.

Instead, the cost of the asset will need to be spread out over a number of years through the process of depreciation.

The ATO uses a method called “Diminishing Value” to calculate the depreciation of assets.

Under this method, the deduction for each year decreases as the asset gets older. Depreciation is calculated on the remaining value of the asset after any claim of instant asset write-off, and the rate will depend on the effective life of the assets as determined by the ATO.

Check in with the Books360 accounting team regarding eligibility and if the instant asset write scheme works for your business. We’ll be happy to work through different asset purchases for you.