Have you heard of the Federal Government’s instant asset write-off? And that it's about to get better?
If you haven’t, you'e not alone. Research by American Express has revealed almost half of all small business owners are unaware of this initiative and that it could be of great help.
Here's a quick rundown on the instant asset write-off and whether it’s something you should take advantage of.
And how is it getting better? On 30 January 2019, the Federal Government proposed increases to the level of instant asset write-off from $20,000 to $25,000 and an extension of the deadline through to 30 June 2020.
What is an instant asset write-off?
An instant asset write-off allows small businesses (with an annual turnover of less than $10 million) to claim immediate deductions of up to *$25,000 for new or second-hand plant and equipment asset purchases such as vehicles, tools and office equipment. The assets must first be used, or installed for use, in the income year you’re claiming for.
The initiative has been around since 2015 and is set to be extended through to *30 June 2020, meaning there is still plenty of time for you to consider making use of this tax deduction.
What type of purchases should I consider making?
Before making any large purchases, we suggest you speak to your accountant or tax professional and assess how the asset will benefit your business and how the purchase may impact on your cash flow or finances in the short term.
If you decide to take advantage of the instant asset write-off, you should make the decision based on the needs of your business. For example, if you need to purchase a vehicle for deliveries to expand your business operations to help you achieve your business goals, or because it is in line with your business plan.
What happens if I make a purchase of more than *$25,000?
The *$25,000 threshold applies to the total cost of the asset, not just its taxable portion. Any purchases equal to or more than *$25,000 can be put into your small business asset pool, where you will be able to claim gradual deductions (depreciation) each year.
For example, if you buy a motor vehicle for $38,000 but the business use of the asset is only 50 per cent ($19,000) you can’t claim the instant asset write-off, but you can allocate that $19,000 to a general small business pool.
How do I claim the instant asset write-off?
If you buy an asset that comes under the *$25,000 threshold during this current tax year, you can claim the business portion of the asset’s use in your tax return for the 2018-19 financial year.
When it comes to trade ins, the instant asset write off is assessed based on the full purchase price of the item. For example, if you purchase a motor vehicle for $27,000, and trade in another vehicle for $5,000, you’re unable to state the cost of the vehicle as being $22,000 so it can be claimed as an instant asset write-off.
TIP: If your business is structured as a partnership there’s no double-dipping allowed. Under the instant asset write-off, purchases are considered as being owned by the partnership and not by individual partners. If a partner buys an asset such as a motor vehicle in their own name, the asset won’t be eligible for the write-off as part of the partnership, and if the partner does not qualify as a small business taxpayer personally, they will not be eligible for the write-off.
For more information on the *$25,000 instant asset write-off visit the Australian Taxation Office website or speak to your accountant or a qualified tax professional.
If you’d like to speak to a business adviser to discuss your business plan or how your business can expand, contact our free advisory service.
*The legislation to pass the proposed increase and extension of the instant asset-write off will be introduced into Parliament on 12 February 2019. It is not yet law.