Immediate Write-Off For Individual Small Business Assets

As part of the Government Stimulus Package the accelerated depreciation and instant asset write-off for small businesses has been revised and expanded. $150,000 is the new threshold for any business with an aggregated turnover of up to $500 million (previously $50 million).  Qualifying businesses will be able to claim a tax deduction for each asset purchased and first used or installed ready for use, up to the following thresholds:

(Excluding GST)
Date of Purchase
Aggregated Turnover
From 12th March 2020 to 30th June 2020
Up to $500 million
From 7.30pm (AEDT) on 2 April 2019 until 11th March 2020
Up to $50 million
From 29 January 2019 until 7.30pm (AEDT) on 2 April 2019
Up to $10 million
From 1st July 2016 to 28th January 2019
Up to $10 million

NOTE: Eligible businesses with an aggregated turnover between $10 million and $500 million are entitled to the $150,000 threshold for instant asset write off for assets purchased from 7.30pm (AEDT) 2nd April 2019 but not first used or installed ready for use until 12th March 2020 to 30th June 2020.

On face value the instant asset write off is a very appealing tax concession, however, there are a number of conditions you need to satisfy. Firstly, the asset must be used in the business for income-producing purposes. The Tax Office have stated they will monitor usage to detect ‘rorts’ so once you lodge your tax return you might get a ‘please explain’ letter from the ATO asking for more details.

Here are some key points to consider:

  • The asset can be new or second hand
  • To be eligible, the asset must be purchased by a business turning over less than $50m or $500 million after 12th March 2020 (see above)
  • The amount must be under $150,000 (depending on date of purchase – could be $30K or $25K or $20K) exclusive of GST (i.e. $165,000, $33K, $27.5K or $22K including GST)
  • If you borrow to purchase the asset, the asset is still eligible
  • The asset must be installed and ready to use by the deadline (purchasing a car to be delivered in July 2020 or later won’t qualify until the car is actually delivered)
  • To claim the write off on a motor vehicle you will need to have a valid log book and claim only that percentage of the cost as an immediate write off
  • If you purchase a car for your business, the instant asset write-off is limited to the business portion of the car limit of $57,581 for the 2019–20 income tax year
  • Some taxpayers may try to reduce the cost of an asset to under $30k (for purchases prior to 12th March 2020) by using a trade-in when purchasing the asset (for example a car). However, the monetary value of the trade-in will form part of the asset cost and not reduce the cost of the asset.
  • Any attempt to manipulate invoices etc. will attract the ATO's use of the anti-avoidance rules, thereby eliminating the write off.
  • If your business has a small profit or even a loss, the write off will be of little or no benefit in the current year (losses are not refundable but can be carried forward to the next year)
  • Building structural improvements are not eligible for the instant write off
  • If your pool balance at the end of the year is less than $30,000 before applying any other depreciation deduction, the entire pool balance can be written off ($150,000 if purchased post 12th March 2020)
  • If your business is not a ‘Small Business Entity’ you will need to depreciate all assets purchased over $1000. Any assets purchased for $1000 or less can be written off immediately
  • Accelerated Depreciation Deductions

Newly acquired depreciating assets valued at more than $30,000 (or $150,000 post 12th March 2020) and not applied the instant asset write off deduction to, can be added to the general business pool. As part of the backing business incentive, an accelerated depreciation deduction of 57.5 per cent  for the business portion of the new depreciating asset applies for the cost of an asset on installation from 12th March 2020 to 30th June 2021 and existing depreciation rules apply (15 per cent for the first year and 30 per cent for subsequent years) to the balance of the asset’s cost and for subsequent years. There is no limit to the cost of a qualifying depreciating asset eligible for this concession, but the asset must be new and not second hand.

Other 2020 Year End Tax Planning Opportunities

Disclaimer: This newsletter contains general information only and no responsibility can be accepted for errors, omissions or possible misleading statements. It is not designed to be a substitute for professional advice and does not take into account your individual circumstances. Therefore, no responsibility can be accepted for any action taken as a result of any information contained in this newsletter.