Your instant asset write-off questions answered

The recently released Federal Budget has provided much-needed relief to Australian businesses with an extension to the Instant Asset Write Off Scheme.

As revealed by the Treasurer, Josh Frydenberg, all Australian businesses with a turnover less than $500 million a year will be eligible for tax write-offs on all assets valued up to $150,000, purchased, installed and ready for use between March 12, 2020, and December 31, 2020.

What is an instant asset write-off?

A previous tax write-off scheme was introduced by the Australian Government in 2015, with the aim of helping small businesses invest and grow by bringing eligible tax deductions forward. This was revised in January 2019 to allow more businesses to benefit from the scheme.

Due to the many challenges businesses are currently facing because of the COVID-19 pandemic, the Australian Government has increased the instant asset write-off threshold from $30,000 to $150,000.
Around 3.5 million businesses will be eligible for this tax break. This makes up nearly 99 per cent of Australian enterprises.

Many businesses suffered significant losses due to the challenges of COVID-19. This tax break aims to stimulate the economy and businesses that have been impacted.

This scheme is also set to include businesses with turn over of less than $10 million from next year.

What does this mean for businesses?

In previous years, many Australian businesses did not take advantage of the instant asset write-off scheme. The revised scheme is aimed at providing relief for many businesses who are currently doing it tough and hopefully give the economy a boost at the same time.

But to take advantage of the tax write-off scheme, businesses still need to fund the purchase of the asset.

The current version of the scheme allows businesses to claim the cost of business assets up to the value of $150,000 in the financial year they were purchased. It applies to either new or second-hand assets, as long as they are new to your business, and you are able to demonstrate proof of purchase.

The resulting “write-off” allows businesses to reduce taxable income and therefore the amount of tax payable.

A great feature of the scheme is that the threshold applies on a per asset basis and there is no limit to the total number of assets you can claim. For businesses earning between $50m and $500m, each asset must cost less than $150,000 and be purchased by December 31, 2020.

Small and medium businesses can apply full expensing to all second-hand assets.

If the asset purchased is not solely used for business purposes – such as a car used for business purposes three days and for private use the rest of the week – you can only claim that percentage of the purchase price and not the whole purchase price.

Applying for asset write-offs

It’s important to assess your business essentials and determine where the incentive will provide the most value. Prioritising assets that help achieve short and long term business goals will be crucial.
Assets able to be claimed include vehicles, machinery, computers, office equipment and many other business essentials.

Consider a loan

Of course in some cases, a lack of capital can make it difficult to take advantage of this type of incentive, and that’s where a low interest loan for your business may be able to help.
Talking to an expert will provide you with information on whether your business meets the lending, eligibility and repayment criteria for a low rate business loan.

A business loan could help you take advantage of the asset write-off scheme without putting your cash flow at risk.

For further clarity on asset write-offs and the newly revised scheme, speak to your accountant or a tax professional before purchasing for your business to ensure eligibility.