According to Small Business research by American Express in 2018, 47% of Australian businesses were under-utlising the governments extended Instant Asset Write-off scheme. The most likely reason was cited to be lack of clarity about how the scheme works; what assets are eligible and/or lack of capital to purchase the asset in the first place.
So let’s get some clarity!
What is the $30,000 Instant Asset Write-off?
The scheme, which was first introduced in 2015 by the Australian Government, is designed to help small businesses invest and grow by bringing eligible tax deductions forward and providing a boost to business cash flow. In January 2019, the Australian Tax Office (ATO) revised the scheme to allow more businesses to benefit by extending the scheme date to 30th June 2020; and increasing the business eligibility criteria. So you have just over 12 months to take advantage of the scheme!
So let’s understand it, to take advantage of it!
The Instant Asset Write-off scheme allows businesses to claim the depreciation portion of a business asset that was bought for up to $30,000, in the financial year it was bought. This is instead of claiming smaller yearly depreciation amounts over a number of years or the life of the asset. For example; if you purchased a business vehicle for $28,000, rather than claiming a depreciation of 10% each year for the next 10 years, you can claim the depreciation value as a one-off lump sum.
So how does this benefit your business?
Apart from having one less thing to worry about at tax time, claiming the depreciation value of the business asset as a lump sum reduces your taxable income and therefore reduces the tax payable by your business. This means more cash flow in your business for the day-to-day or to invest to growth.
Do keep in mind that you still need to fund the purchase of the asset (via cash or asset finance) – the $30,000 Instant Asset Write-off isn’t a free handout. When you claim the deduction as a lump sum, you are bringing forward tax deductions that you would normally have claimed over a number of years. The advantage of claiming the instant asset write-off is that you get a cash injection this year rather than a trickle through your tax returns over a number of years.
Who is eligible for the $30,000 Instant Asset Write-off?
The scheme is available to businesses with an annual turnover of up to $50 million. In 2019, the ATO extended the criteria to be more inclusive of various business sizes and to fall in line with the Australian Governments’ change in definition of a ‘small business’. Prior to January 2019, the Instant Asset Write-off was only available to businesses with up to $2 million annual turnover.
What can I claim under the Instant Asset Write-off
Firstly, before making any purchases, we recommend that you speak to your tax professional or accountant to determine what is best for your business, your cash flow and finances. They should also be able to provide a list of assets that are eligible under the scheme (or you can find this via the ATO website: General depreciation rules – capital allowances.
Here is a quick summary:
- Assets can be second-hand or new. They just have to be new to your business.
- There is no limit to the total number of assets you claim. Just each asset needs to cost less than $30,000.
- If the asset (ie. a vehicle), is to be used for business purposes only 50% of the time, you can only claim 50% of the purchase price.
Examples of assets that can be claimed include:
- Vehicles – including cars, 4×4, vans
- Tradie tools and machinery
- IT hardware (desktop computers, printers, servers etc)
- Office, studio and shop furniture and fittings
- Equipment storage (sheds and storage containers)
- Kitchen equipment
- Business signage
- Air conditioners.
Examples of assets that don’t qualify include:
- Horticultural plants
- Building construction costs and other capital works
- Assets leased to another party
- A depreciating asset lease
- In-house software etc…
Remember – this information is a guide only, we do recommend that you speak to your accountant/tax professional for clarity about any item you are planning to purchase for your business.
Can I finance an asset to claim under the Instant Asset Write-off scheme?
Yes! If your business is planning to purchase a major asset or assets in the coming 12 months, a low rate business loan could provide the funds you need to purchase the asset now and claim the tax break before 30th June 2020. If your business meets lending, eligibility and repayment criteria, then a low rate business loan could help you take advantage of the scheme while investing in business assets without affecting your cash flow.
- Firstly determine what asset or assets your business needs and if it helps achieve your long and short term business goals;
- Speak to your accountant/tax professional about what is best for your business and if the asset is eligible under the $30,000 Instant Asset Write-off scheme;
- If you are considering financing the asset with low rate finance, use our Asset Finance Calculator as a guide to how much your weekly repayments might be based on the asset cost and the term of the loan.
- If you are looking for a particular vehicle that fits under the Instant Asset Write-off threshold, why not visit GumtreeCars.com.au. Each vehicle listing over $10,000 has an easy to view weekly finance repayment amount based on that asset type, value and vehicle age.
- Make an enquiry and ask to speak to one of our Commercial Finance Specialists about a low rate business loan.