All About the Instant Asset Write-Off

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A lot has been in the news lately about the extended instant asset write-off. But what does it all mean? More importantly, is it something that is relevant to your business? And, how can you make the most of this helping hand from the government while it still lasts?

The instant asset write-off has been a tool used by the government to encourage businesses to invest. By investing, the government rewards the business by helping with their cash flow, in the form of a larger, more instant, tax deduction.

But we may be getting ahead of ourselves, so let’s wind this back a bit and start from the very beginning.

What is an asset write-off?

Normally, if you buy a major asset for your business (e.g. a delivery van) you can only claim the ‘depreciation’ on that asset each year as a tax deduction. Depreciation is simply the amount that this asset loses value over time (usually many years). From a tax perspective, depreciation is considered a cost to your business each year. This depreciation cost is a tax deduction which can be claimed each year.

What is an ‘instant’ asset write-off?

An ‘instant’ asset write-off (again, from a tax perspective) means that you can claim the entire value of the depreciation instantly. By instantly, this means in the first financial year your new business asset was installed and ready for use. By obtaining this tax deduction early, it makes it more attractive to invest in your business.

For example, if you bought that delivery van for your business for $50,000 you would be able to claim the full $50,000 as a tax deduction in the first year even though you will have many years of use left on the truck. You obviously can’t claim any further depreciation deductions in future years as the asset has been written off in its first year. As always, there are eligibility criteria and limitations. But more on this below.

Why does the instant asset write-off exist?

The instant asset write-off in Australia is designed to encourage businesses to invest. In times like now when business owners may be wanting to hold on to cash, the government provides the instant asset write-off as an incentive to invest. In return, this helps the business with cash flow, in the form of a larger tax deduction.

Who and what is eligible for the instant asset write-off?

The instant asset write-off rules have changed a lot over time. The scheme was expanded in big way in March 2020 due to the Coronavirus. The changes announced in March allowed businesses who earnt up to $150 million (previously only $50 million) to claim assets up to the value of $150,000 (previously only $30,000). This was due to end on 1 July 2020, but it has now been extended till the end of 2020.

Should I take advantage of the instant asset write-off?

With any financial or tax decision it pays to get the right advice. The instant asset write-off certainly makes it attractive to purchase an asset to grow your business and save on tax at the same time. However, it would be wise to only proceed if your business really needs the investment. And, now that the revised scheme has been extended, there is not as much urgency to rush to invest prior to 1 July. Still, it pays to plan ahead to manage your tax exposure.

Instant asset write-off advice.

Saige Accountants have extensive experience at Business taxation planning and Management Accounting. We can help you decide if now is the right time to invest and if that will help with both your cash flow. As Registered Tax Agents, we can also complete your end of financial year reporting and help determine your obligations to the ATO. Talk to us about your tax planning. 

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