The Instant asset write-off scheme, introduced by the Australian government, is a powerful tax benefit that has been a game changer for a lot of businesses in Australia.
If you are a business owner, it is not a secret that managing taxes is an essential part of your financial strategy. So, if you are looking to save on taxes and make smart financial decisions, understanding how this program works can be extremely beneficial.
What Is An Instant Asset Write-Off?
As per the instant asset write-off, businesses that meet the eligibility criteria can deduct the cost of an asset’s business portion as an immediate deduction in the year when the asset is first put to use or made ready for installation.
It can be used for:
- New assets, as well as second-hand assets
- Multiple assets (only if the cost of each individual asset is not more than the relevant threshold)
As per the Australian Taxation Office (ATO), a small business needs to apply the simplified depreciation rules if it wishes to claim the instant asset write-off. You will not be able to use it for the assets excluded from those rules.
Over time, both the eligibility criteria and threshold have changed. You must check the eligibility of your business and apply the correct threshold amount as per the time of purchase of the asset, first used or installed ready for use.
There are three temporary tax depreciation incentives available to businesses that fit the eligibility criteria. These are:
- Instant asset write-off
- Temporary full expensing
- Backing business investment
The instant asset write-off is not applicable to assets that you acquire and begin to use (or have ready for use) for a taxable purpose between 7:30 pm (AEDT) on 6 October 2020 and 30 June 2023. The business portion of the asset’s cost needs immediate deduction under temporary full expensing.
In case you aren’t eligible for temporary full expensing or it does not apply, you still have the option to claim a depreciation deduction under the instant asset write-off if the asset meets the following conditions:
- The asset was purchased by 31 December 2020.
- The asset was first used or installed ready for use before 30 June 2021.
To learn more about this, you can reach the official website of the ATO.
How Does Instant Asset Write-Off Work?
In case you thought this tax break was a cash handout, you will be disappointed. Just like other deductions, it reduces your taxable profit.
The instant asset write-off can be an important tax-saving strategy for a lot of businesses because it provides significant cash flow benefits. You can reduce your taxable income by immediately deducting the cost of eligible assets. As a result, you will have to pay less tax.
If your business had a good financial year and you wish to reduce your tax bill, this can be useful for you.
Temporary Full Expensing
Temporary full expensing was introduced with the purpose of supporting businesses and encouraging investment. Eligible businesses could claim an immediate deduction for the business portion of the asset’s costs in the year the asset is first used or installed ready for use for any taxable purpose.
However, the Federal Budget 2023-24 has not extended the deadline for the expanded Temporary Full-Expensing measure. Thus, it has come to an end on 1 July 2023.
Instant Asset Write-Off Eligibility Criteria
To determine the eligibility of an asset to use instant asset write-off, you would require the following:
- The date of purchase of the asset
- When the asset was first used or installed ready for use
- Your aggregated turnover (your business’s total ordinary income and that of any associated business)
- The asset’s cost is less than the threshold
If your aggregated turnover is equal to or over $500 million, you will not be eligible to use the instant asset write-off on an asset.
In case the temporary full expensing applies to the asset, you don’t apply the instant asset write-off.
Assets That Can Be Claimed Under The Write-Off
The Instant Asset Write-Off is a fantastic opportunity for businesses to claim immediate deductions for assets that play a crucial role in their operations. These assets typically have a limited life expectancy and tend to decrease in value over time. Let’s take a closer look at the kinds of assets that commonly fall under this scheme:
- In today’s world, computers, laptops, and tablets are essential tools for businesses of all sizes. These devices can be written off, making it easier for you to upgrade your technology.
- Desks, chairs, filing cabinets, and other freestanding furniture items can all be included. So, if you’re revamping your workspace, you can enjoy tax benefits too!
- Office equipment covers a wide range of items that help your day-to-day operations run smoothly. This category includes printers, coffee machines, photocopiers, and more. Don’t forget to include these in your asset write-off calculations.
- From cars to vans and even tractors, motor vehicles are often essential for business operations. If your business relies on wheels, you’ll be pleased to know that these vehicles can also be part of the Instant Asset Write-Off.
- For businesses in various industries, tools and equipment are indispensable. Whether you’re a tradesperson with a toolkit, a restaurant owner with kitchen appliances, or a builder with heavy machinery, these items can be deducted. It’s a significant incentive to invest in the right tools for your trade.
This scheme recognises the value these assets have on your business. By letting you write off these assets, it supports your efforts to keep your business efficient, competitive and up-to-date.
Although these assets can be written off, you need to consider their eligibility criteria first. The cost of the asset and its use for a taxable purpose are some of the factors that are considered.
Thus, you need to stay informed and consult with the experts to know what and how you can claim under this scheme.
News For Small Businesses
Since you know about the instant asset write-off, let us move on to the changes announced by the Australian government in the 2023-24 budget.
What’s New?
Starting from 1 July 2023 and running until 30 June 2024, small businesses with an aggregated turnover of less than $10 million will enjoy an increased instant asset write-off threshold of $20,000.
What does this mean for you? It means that you can immediately deduct the full cost of eligible assets that cost less than $20,000 when you use or install them in your business during this period.
What About Bigger Assets?
Now, you might be wondering what happens to assets that are worth $20,000 or more. Don’t worry; they aren’t left out. While they can’t be immediately deducted, you can still add them to your small business’s simplified depreciation pool.
This means they will be depreciated at 15% in the first year and 30% in each subsequent year. It’s a win-win situation!
Remember, this fantastic news isn’t law just yet. The Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 is currently before Parliament. Keep an eye out for updates to ensure you can take full advantage of these benefits when they become official.
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