COVID-19 RESOURCE HUB

Getting your head around the constantly shifting instant asset tax write off

5 min read

Ah the Instant asset write tax off. It changed again! Do you know where you stand now?

Over the last few years in Australia, there have been massive – albeit iterative – transformations to the instant asset tax write off scheme. If you were familiar with these write offs last year, you might need to scrub up on your knowledge as it has changed several times since then.

These transformations to the scheme were already in play, as a business incentive, well before the COVID-19 pandemic. Now, with an even stronger need to stimulate small business and spending, we’ve seen a huge expansion in the scope and weight of the scheme.

Do you know what it currently is? Are you fully aware of its purpose? Do you know if your chosen asset qualifies?

Current scheme

As it currently stands, fully legislated, the write off was expanded for COVID-19 from March 12 to June 30, 2020. This extension is technically the current term of operation.

As of today:

  • the threshold amount for each asset is $150,000 (up from $30,000)
  • eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million)
  • it includes new or second-hand assets used or installed and ready for use during this timeframe.

Proposed further extension

But wait! Not so fast! Things are changing rapidly, and it’s been announced the scheme will be extended beyond June 30 until December 31, 2020. Even though it’s not legislated yet, you may well have more time to take advantage of the scheme.

“Australian businesses will be able to take advantage of this extended timeframe to invest in assets to support their business as the economy reopens and Coronavirus health restrictions continue to be eased,” – Josh Frydenberg, Treasurer.

The new proposal will see the $150,000 scheme extended until December 31, 2020, allowing businesses such as yours time to recover, revamp and gain benefit from instantly writing off new work equipment.

The Treasurer also noted that “the extension will also give businesses additional time to acquire and install assets, as they will now have until the end of the year.”

Purpose

What is the purpose of this scheme? As it has been over the last few years, the aim of this scheme is to get cash flowing, businesses spending while incentivising the growth of that business at the same time.

Now that we live in a post COVID-19 world, the scheme has become even more important to aid the recovery of individual businesses like yours and the economy at large.

“These measures will support over 3.5 million businesses. They are designed to support business sticking with investment they had planned, and encouraging them to bring investment forward to support economic growth over the near term. The instant asset write-off also helps to improve cash flow for businesses by bringing forward tax deductions for eligible expenditure,” Josh Frydenberg.

Details on what you can claim

Basically, if you’ve bought a core piece of depreciating equipment or another work related asset, you can save on your tax bill with a nice offset.

However, you must be able to prove that the piece of equipment is central to your business and its operation. This is key.

Eligible assets can include:

  • vans, trucks and vehicles
  • tools and trade equipment
  • computers and IT equipment
  • plant machinery
  • coffee machine and other kitchen equipment

You can also claim personal and business expenses on an item. If you need a work truck which will be used for personal purposes, say 30% of the time, you can split the asset and claim the 70% portion of the truck for work purposes.

As always, check directly with the ATO to ensure your intended asset is covered. The last thing you want is to be caught out with an ineligible asset.

It may not be a benefit to you at all

But will you benefit from a tax offset at all? Perhaps not. You’ll have to decide whether the offset puts you in a better position to do business, or whether the intended asset is not quite necessary enough to cover its initial expense.

There are several ways in which this scheme would be of no benefit:

  • If you’re operating at a loss.

Ruminate on whether or not you actually need anything. Many businesses don’t. This is not a free meal ticket after all, as you’ll have to stump the initial costs and benefit from the write off later on.

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