The instant asset write off has been extended for small business
$150,000 instant write off extended to 31 December 2020
If your business is in relatively good shape and you’ve been contemplating an asset purchase, now is the time to buy. 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.
Although this higher threshold was scheduled to end on 30 June 2020, on 9 June 2020, the Treasurer announced that the higher threshold will be extended until 31 December 2020. Legislation to give effect to the announcement is yet to be introduced.
$150,000 instant write off extended to 31 December 2020
With businesses all around the country slowly starting back up with the easing of social restrictions, many 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 required capital assets between now and the end of the year and claiming the instant asset write off to get an immediate tax deduction for the cost of the asset.
From 12 March 2020 until 31 December 2020, the instant asset write-off threshold amount for each asset has been increased from $30,000 to $150,000. This means that businesses can purchase an asset up to the value of $150,000 and claim the entire cost amount (or the business-use portion) as a tax deduction, provided the asset is first used or installed ready for use between now and the end of this year. Any businesses with an aggregated turnover of less than $500 M is eligible.
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.
Claiming the instant asset write off on business vehicles
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 5 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 the car for depreciation is limited to the car limit for the year. For the year ending 30 June 2020, the car cost limit for depreciation purposes is $57,581. Therefore, you will only be able to deduct $57,581 (assuming 100% business usage) under the 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 was purchased for $70,000 on 15 June 2020, your business is able to claim the full deduction of $70,000 (assuming 100% business usage).
In addition, the amount you can deduct for a car is limited to the business use percentage of the car.
Multiple assets and the threshold
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 $150,000 threshold.
Whether or not GST is included or excluded from the threshold largely depends on whether your business is registered for the GST. It will be crucial to get this right, particularly for those assets whose cost is 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 the simplified depreciation rules or general depreciation rules, depending on which method the business uses and the type of asset.
Help yourself while helping the economy
If your business has been thinking about buying a capital asset that costs less than $150,000 now is the time to act.
You have until 31 December 2020 to first use the asset or have it installed ready for use to take advantage of a large immediate tax deduction.
Contact us today if you’re not sure whether the asset you’re planning to purchase would qualify or need any assistance.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.