The instant asset write-off provisions have been increased and extended for the third time. Eligible businesses can use these provisions to claim an immediate tax deduction for the full cost of qualifying assets (not all assets are eligible) under the threshold amount – rather than being restricted to only claiming the depreciated amount each year for the next 10 years.

To understand the impact these provisions have for businesses, consider the scenario where an eligible company purchases a qualifying asset worth $20,000. That business can use the instant asset write-off provision to reduce their taxable income in the first year of ownership by $20,000. Normally, using depreciation, they might only be able to reduce their taxable income by say $3,000 in that first year. This can make a big impact on the end of year tax bill.

Here we go over the four key things to understand about the instant asset write-off provisions:

1: Thresholds for small businesses
For the purpose of the instant asset write-off provison, small businesses are defined as those having an annual aggregated turnover of less than $10 million. The threshold varies according to the period the asset is purchased and installed ready for use – refer to the table below:

 

To qualify for the higher thresholds, assets need to be purchased and installed ready for use within the corresponding periods. For example, you can only use the provisions for an asset costing $28,000 if the asset was purchased and installed between 7.30 pm on 2 April 2019 and 30 June 2020.

There is a pooling provision available to small businesses that purchase assets costing more than the relevant threshold amount in a particular period. Contact us if you would like more information on this as it becomes rather complex.

2: Threshold for medium businesses
Medium businesses are defined as those having an annual aggregated turnover of less than to $50 million. These businesses can use the provision on assets worth under $30,000 that were purchased and installed ready for use between between 7.30 pm on 02/04/2019 and 30/06/2020.

Medium businesses were not eligible for the lower thresholds.

3: It doesn’t apply to assets you don’t own or lease out
Some businesses are structured so that all assets are held in a separate entity; and that entity then leases those assets to the operating entity that expenses are paid out of.

You are not able to use the provisions for assets you lease from someone else; and in some cases you are not able to use the provisions for assets you lease out.

4: Warning re cost base
Be aware of your total cost base when planning the purchase of an asset with the intention to use the instant asset write off provisions. It is easy to unintentionally go over the threshold. For example, you might purchase a new vehicle from a dealer for $28,000 and pay the on-road costs yourself. These extra costs could take you over the $30,000 threshold in which case you would have to depreciate that asset according to the general rules.

If you have any questions about instant asset write-offs , please contact us on 03 5339 3200 or contact us here.

Thanks for reading.

The information contained on this website has been provided as general advice only.  The contents have been prepared without taking account of your personal objectives, financial situation or needs.  You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.