Buying equipment for a business can be expensive, so it’s important that every business owner
knows when and where they can write off their company purchases against their taxes.
The instant asset tax write-off offers a way for you to claim assets your purchase -- now
up to $30,000 -- this financial year rather than depreciating over several years.
It’s a pretty generous scheme designed to help you reinvest in areas like equipment
or stock to grow your business and become more productive. Here’s how to get the most from it
So last financial year, the instant asset write-off was $25,000. That’s now been increased to
$30,000. It’s also been extended to small and medium enterprises with an annual turnover
of up to $50 million (up from $10 million previously).
This opens the tax break up to an additional 220,000 Aussie businesses.
SMEs that meet the criteria can purchase eligible assets up to a value of $30,000.
You just need to make the purchase and use the asset for your business before the 30th
of June, 2020.
Of course, many businesses don’t just have a spare several thousand lying around, so
borrowing is one way some choose to take advantage of the incentive. We’d strongly caution
against buying things you don’t really need, but speak with your bank or an alternative
funder like Capify to find out which assets they’d consider financing.
Any single asset under $30,000 that is purchased for business purposes qualifies for the asset
tax write-off.
However, it’s important to note that only the portion of the asset that is used for
business purposes qualifies. Private use portions are non-deductible.
So, if you were to purchase a computer for your business today for $6,000 which was 75%
for business use, and 25% for private use, you would only be entitled to claim $4,500
of the value of the computer as a tax write-off.
And because the total cost of this computer is below $30,000, the business portion would
be instantly claimable in the 2019 tax return.
On another note, if a business purchases multiple assets under $30,000 in the same year, they
should all qualify -- even if the combined cost exceeds $30k.
Here’s another example to help clarify that point: you could purchase a company car for
$18,000 and a truck for $28,000 both for 100% business purposes in this year. They would
both individually qualify for the instant asset tax write off in your 2019 tax return.
This is despite the fact that the combined cost of them exceeds $30,000.
By the way, the cost of the asset includes both the amount you paid and any additional
amount spent on transporting it, improving it or installing it for use.
If your business purchase is over $30,000, what's known as the asset cost threshold,
the rules are different.
If the total cost of a purchase exceeds $30,000, it does not qualify for the instant asset
tax write off. This is the case even if the portion of the asset which is claimable is
under $30,000.
For example, if you buy a vehicle for your business for $40,000, that’s 50% for business
purposes, you are entitled to claim $20,000. Even though this $20k is below the instant
asset write off threshold, you can’t instantly write it off, because the total cost of the
vehicle exceeds the $30,000 cap. So, you will need to add the $20,000 cost to your small
business pool and claim it later.
The small business pool is where small business owners can allocate depreciating assets to
be depreciated at a rate of 15% in the year they are added and 30% in following income
years on a diminishing value basis. This is irrespective of the overall life of the asset.
This means that you essentially pool the business portion of most higher cost assets and claim
a 15% deduction in the year you start to use the asset or a 30% deduction after the first
year.
However, you can deduct the entire balance of the small business pool at the end of the
income year if the balance is below the $30,000 instant asset write-off threshold.
Trade-ins can be tricky. Imagine you buy a new car priced at $35,000,
but get a $7,000 trade-in for your old vehicle. Even though you only hand over $28,000 for
the new vehicle - below the tax write-off threshold - because the full purchase price
of the car is over $30,000, you won’t be able to claim it in your 2019 tax return.
It’ll have to be added to the small business pool.
It's a fiddly scenario, so make sure you check the ATO website to understand the rules fully.
So that’s the basics of the tax break. Here’s a quick check-list to recap:
1. If your business is eligible and has purchased an eligible asset, you can now make a deduction
on every new asset under $30,000. The entire cost of the asset must be less than $30K,
not just the business-use portion.
2. The asset can be new or used.
3. The asset you purchased was first used or installed and ready to use in the income
year you're claiming it in.
4. You must subtract any private use proportion, which is the proportion of the time that the
asset will be used for personal use instead of business use.
5. To find out more about the instant asset tax write-off and what purchases do and don’t
qualify, check out the government website and speak with a tax expert for any specific advice.
And click below to watch our new video: 5 strategies to improve your business cash flow.
It can be tough to take time out when you’re pulled in so many directions running the business
each day. But it pays to take stock of what’s working and what isn’t. See you there.