The Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019 was passed by the House of Representatives and Senate on 4 April 2019. The amendment increases the threshold of the scheme to $30,000 and expands eligibility to medium-sized businesses with a turnover of less than $50 million.
According to Treasury estimates, the amendments will allow an additional 220,000 businesses to access the scheme, taking the total number of businesses eligible to claim the upfront deduction to 3.4 million.
Note that, while the amendment has passed, the bill will not become law until it receives Royal Asset (usually between 7 and 10 working days after being passed).
The latest amendments mean there are now three tiers for the 2019 income year:
- Tier 1: $20,000 threshold for depreciable assets acquired before 29 January 2019
- Tier 2: $25,000 threshold for assets acquired between 29 January 2019 and 2 April 2019
- Tier 3: $30,000 threshold for assets acquired between 2 April and before 1 July 2020
For the first time, the Instant Asset Write-Off at the Tier 3 threshold will also be available to Medium Business entities with a turnover of between $10m and $50m.
How does the Instant Asset Write-Off work?
Using the simplified depreciation rules, assets costing less than the applicable instant asset write-off threshold are 100% written off in the year they are bought and used (or installed ready for use).
Small business owners therefore get the benefits of an immediate deduction, rather than having to depreciate an asset over the term of its useful life. This applies irrespective of whether the asset is new or second-hand.
The immediate deduction can be used more than once. Assuming all conditions are met, an immediate deduction should be available for each item costing less than relevant threshold.
Where an asset is used for both business and personal use, the tax deduction can only be claimed on the business percentage. For instance, if you buy a $4,000 computer and use it 80% of the time for business and 20% of the time for personal use, only $3,200 of the total cost is deductible.
What assets are included?
- Assets that cost less than $30,000 (if acquired between 2 April 2019 and 1July 2020)
- Assets that are directly related to your business’s income producing activity e.g. computers, phones, vehicles, tools, machinery, equipment, websites etc
- Certain structures on agricultural property that would normally be classified as capital works
What assets are excluded?
- Assets that cost more than $30,000
- Assets that are leased out (or expected to be leased out) for more than 50% of the time on a depreciating asset lease
- Assets already allocated to a low-value pool
- Horticultural plants – e.g. grapevines
- Capital works including buildings and structural improvements (which are written off over a longer period)
The Instant Asset Write-Off is a deduction, not a refund
The instant asset write-off is a tax deduction that reduces the amount of tax your business has to pay. If your business is likely to make a tax loss, then the bigger deduction may not provide any short-term benefit.
The Instant Asset Write-Off and GST
The cost of an asset includes both the amount you paid for it and any additional amounts you spent on transporting and installing it ready for use.
If you are registered for the goods and services tax (GST) and can claim the full GST credit, you exclude the GST amount you paid on the asset when you calculate your depreciation amounts (therefore your instant asset write-off threshold is $30,000 exclusive of any GST).
If you are not registered for GST, you include the GST amount you paid on the asset in your depreciation calculations (therefore your instant asset write-off threshold is $30,000 inclusive of any GST).
If you are only able to claim a portion of the GST credit then the cost is reduced by the portion you can claim.
Be mindful of contract dates
In order to take advantage of the new $30,000 threshold, you will need to acquire your asset between 2 April 2019 and 30 June 2020. Therefore, keep in mind that the wording of any contract you sign is important. Ensure that any contracts for assets which are subject to lead times, delivery or installation make your business the owner of the asset before 1 July 2020.
The Instant Asset Write-Off can be a useful tax planning tool for businesses who want to bring forward capital expenditure. If you have the cash flow available, and have been planning an asset purchase, now might be a good time for you to take advantage of this opportunity.
If you are considering purchasing business assets, make sure you have a chat with your accountant first. Not only can we advise if this is the right time to utilise the Asset Write-Off scheme, we can also ensure your business, dates and purchase are eligible.
Feel free to contact us for further advice. You can reach us on 07 3023 4800 or at email@example.com.