Don’t forget the instant asset write-off

Camphin Boston | June 2020

If your business is in relatively good shape and have been contemplating an asset purchase, now is the time. Not only will you be helping the Australian economy get back on its feet, you’ll be doing your business a favour by taking advantage of the instant asset write-off threshold of $150,000. Which is the highest it has ever been or will likely to be for a while. This high threshold was originally going to end on 30 June 2020 (and be replaced by the usual $1,000 threshold) however the goods new is that the federal government has now extended it to 31 December 2020.

With businesses all around the country starting to be back up after the COVID-19 pandemic, many, including the federal government are hoping to trade their way out of a potentially prolonged recession. Businesses that are in relatively good shape can help the economy and themselves at the same time by purchasing any needed capital assets and taking advantage of the instant asset write-off now.

From 12 March 2020 until 31 December 2020, the instant asset write-off threshold amount for each asset has been increased from (the temporary) $30,000 to $150,000. Which means that businesses are able to purchase an asset up to the value of $150,000 and claim the entire amount (or the business-use portion) as a tax deduction provided it is first used or installed ready for use between those dates. Any businesses with an aggregated turnover of less than $500m is eligible.

You’d better be quick though, after 31 December 2020, the instant asset write-off threshold will revert back down to $1,000 and only small businesses with an aggregated turnover of less than $10m will be eligible. This means that the difference in timing could cost your business a large deduction in the current financial year.

The timing of whether you get the instant asset write-off threshold of $150,000 versus $1,000 will largely depend on when the asset was purchased and when it was first used or installed ready for use. Generally, if the asset was first used or installed ready for use between 12 March 2020 and 31 December 2020, the higher instant asset write-off threshold applies.

However, not all assets are included in the instant asset write-off, a small number of assets are excluded and there are special rules for the purchase of a car.

For example, if your business purchases a luxury passenger car costing $100,000 on 15 June 2020, while the instant asset write-off threshold is $150,000, you are not able to deduct the entire cost of the car. The cost of car for depreciation is limited to the car limit for the year. For the year ending 30 June 2020 (or 2021), the car cost limit for depreciation is $57,581 (or $59,136 respectively), therefore, you will only be able to deduct $57,581 under instant asset write-off and cannot claim the excess cost under any other depreciation rules.

If, in the above example, your business instead purchases a work ute which isn’t designed to carry passengers and has been set up with all the trade tools in the tray for use in your business, the car cost limit for depreciation would not apply. So, if the ute is purchased for $70,000 on 15 June 2020, your business is able to claim the full deduction of $70,000.

It is also important to note that your business can claim the instant asset write-off on multiple assets, as long as the cost of each asset is less than the threshold. Whether or not GST is included or excluded from the threshold largely depends on if your business is registered for the GST. It will be crucial to get this right, particularly for those assets that are close to the threshold.

For any assets that cost the same or more than the relevant instant asset write-off threshold, it will usually need to be depreciated according to either simplified depreciation rules or general depreciation rules, depending on which one the business uses and the type of asset.

Want to do your bit to help the economy?

If your business has been contemplating an asset purchase under $150,000, now is the time to act. You will have until 31 December 2020 to first use it or have it installed ready for use to take advantage of a big deduction in the relevant year. Contact us today if you’re not sure whether the asset you’re planning to purchase would qualify.

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