Tax Guide: 2020 Instant Asset Write-Off Guide for Businesses

business asset write off australia

The Federal Government has devised a few ways to assist Australians in response to the coronavirus crisis. This pandemic has crippled a considerable portion of the economy. As a part of the solution, the instant asset write-off has been improved. This version is designed for many businesses and individuals to stay afloat during this difficult situation.

The new instant asset write-off initiative is now even bigger and better compared to last year. In essence, it is for business owners and sole traders looking to purchase assets that are less than $150,000. If you have such plans, you are in luck. You can use the initiative to your advantage, so you can write off the purchase and save on tax.

How Does the Instant Asset Write-Off Work?

The scheme is for small and medium businesses and sole traders. If you belong to this group, you can benefit from this deduction where you can instantly write off the assets you have purchased. However, the items should be lower than $150,000 (without the GST).

What does it mean? Traditionally, assets will depreciate over time. You can only claim a portion of that original expense for a set period, usually for several years. Instead of this conventional way, the scheme allows you to claim the whole expense in the financial year when the asset was bought.

Old vs New Instant Asset Write-Off Initiatives

The instant asset write-off scheme was initially introduced by the Federal Government back in 2017-18. Over the past few years, its terms have shifted. These include eligibility requirements and the dollar amount to be claimed.

With the pandemic affecting Australia and the rest of the world, there have been even more changes with this initiative. Below are two of the main modifications, which are supposed to help stimulate the economy:

  • Eligibility: Previously, businesses that could claim the asset write-off were those with $50 million annual turnovers. Its scope is even more extensive now, including businesses with an annual turnover of up to $500 million.
  • Amount: Last year, you could only claim up to $30,000. With the new and improved instant asset write-off, you can claim for assets valued up to $150,000. It is a significant increase. The best part is that it can be depreciated right away without needing to wait for several years.

As you may have noticed, the asset write-off is advantageous for those with higher turnovers. Most of these businesses need to make large equipment purchases. With the expansion of the threshold, about 5,300 more firms may be covered. These businesses employ about 1.9 million Australians. It will be the first time in their history ever to use the instant asset write-off.

For small and medium businesses, as well as sole traders, it is now possible to claim the write-off for any single asset. Make sure that you meet the requirements stated above.

The threshold is applicable for all purchases, whether new or used pieces of equipment. Also, it should be noted that it is on a per asset basis. What it means is that eligible businesses are allowed to write-off different assets at the same time. The effect is immediate and can be claimed right after approval.

This initiative is beneficial for business owners and sole operators. You can save on tax when you claim for the deduction of the whole expense within the financial year. As a result, you benefit from having a much lower taxable income. Initially, only purchases from 12 March 2020 to 30 June 2020 were all valid. However, due to the impact of Covid-19, this has been extended until 31 December 2020.

According to Prime Minister Scott Morrison, the Government will supercharge this scheme. This way, businesses can buy new assets to help them operate seamlessly and reap the rewards despite the pandemic.

freelance equipment for instant asset write off

How to Take Advantage of This Scheme

Before claiming for the write-off, you should first understand that only individual purchases are accepted. Aside from the mentioned amount above, the assets should be bought starting 12 March 2020.

If you have purchased anything else that is below $150,000 yet it was done from 2 April 2019 to 11 March 2020, you cannot benefit from these changes. Nevertheless, you can still claim the instant asset write-off of up to $30,000.

Another thing to understand is that the write-off will revert to $1,000, which is the amount for small businesses whose turnover is less than $10 million. It will be effective come 1 July 2020.

Businesses should know which assets or purchases are covered. Some examples of qualified assets are:

  • Trucks and utes
  • Farm equipment
  • Vans and other vehicles used for deliveries
  • Computers and laptops
  • Printers
  • Plant and machinery
  • Cash registers
  • Point of sale devices
  • Cell phones used for the business
  • Tools and other work equipment
  • Furniture
  • Carpets and their installation cost
  • Security systems

The scheme is useful for small to medium businesses, as well as office workers and tradespeople.

By now, you get the idea of which assets can be written off. However, even though the list is quite extensive, the Australian Taxation Office did exclude certain items from the scheme. Those that are excluded will continue following the same rules pertaining to depreciation. Examples of assets that should still go with the same depreciation rules are those that you plan to lease out and horticultural plants.

What You Should Do Now

The first thing that you should do is to ensure that you are eligible for this scheme. Some of the critical requirements that you should look into are the following:

  • The ATO recognises your business as a small or medium business. The same rule applies to sole traders.
  • You have purchased an asset that your business utilises. It should be worth less than $150K.
  • You have bought an asset that meets the threshold stated, or you plan to purchase it before the end of the financial year.

The instant asset write-off can be complex, which is why you may need special assistance. You can talk to your accountant or with us here at TaxReturn.com.au.

If you are like most businesses and business-minded people, you will agree that $150,000 is a substantial investment. You may not have adequate funds right now, especially with the pandemic restrictions in place for the past few months.

Your goal should be to keep cash flow positive, as much as you can. Large purchases are often essential, even for small businesses. It may be tricky, but you can surely benefit from these instant asset write-off changes.