instant asset write off gives business owners a tax break before EOFY

ATO Instant Asset Write Off is designed to aid business recovery and stimulate spending growth in the business community, which has been extended until 30 June 2023.

Our team at thornmoney has heard that many business owners are unclear about what it is, how it works, and whether it applies to you & your business. So, we’ve decided to clear that up for you.

what is the instant asset write off?

Also called instant or immediate asset write off, the program started out as part of the Federal Government’s Stimulus Package. The Instant Asset Write Off package allows businesses to write-off at tax time, purchased assets up to the value of $150,000 (net GST), for applicable assets purchased and used in the year that the write-off is claimed. The instant write off can be claimed in the financial year in which assets were both purchased & ready for use. Otherwise, the whole asset cannot be claimed completely in that year.

am I eligible for instant asset write off?

To be eligible, a small business needs to:

• Have an aggregate annual turnover of less than $500 million.
• The asset:
  • must cost less than the instant asset write-off threshold
  • be purchased and used in the year the write-off is claimed
  • For businesses with an aggregated turnover of less than $50 million, the assets can be second-hand.
  • Generally, depreciating assets must be acquired after 7:30 pm AEDT on 6 October 2020 and installed and ready for use by 30 June 2022 (which will be extended to 30 June 2023).

what are the benefits of instant asset write off?

As EOFY is fast approaching, applicable business owners only have around 6 weeks until 30th June 2022 in order to bring forward some very handy tax write offs for this financial year. This could greatly lower the amount of tax payable, especially if you are expecting to pay a large tax bill this year. But remember, you can only write off the proportion of the eligible asset which is attributed to business use.

The good news is, you can finance and purchase multiple assets within the eligibility threshold limits, provided each asset purchased satisfies the thresholds. Financing applicable assets will allow you to hold on to your cash whilst getting a tax discount, if eligible.

The instant asset write-off eligibility criteria and threshold have changed over time, so it’s important to check your business’s eligibility and apply the correct threshold amount depending on when the asset was purchased, first used or installed ready for use. Visit the ATO website for the latest updates on thresholds.

how do I claim the instant asset write-off?

There are different methods to use depending on the type of business you own, whether it’s a small business, sole trader or partnership. There is no application required; simply apply the relevant deductions in your tax return for that financial year. It’s best to speak to your accountant to ensure you are able to receive the maximum benefits.

what if the asset exceeds the write-off limit?

No need to stress. The instant asset write-off threshold applies to the total cost of the asset, not just the taxable portion. Any purchases which exceed the threshold can simply be added to your small business asset pool. This is where you will be able to claim gradual depreciation deductions each year.

do write offs give you money back?

Not exactly. Instead, a tax write-off is an expense you can partially or fully deduct from your taxable income, reducing how much you owe the government.

but wait there’s more: Instant Asset Write Off Extension.

The Instant Asset Write-Off has recently changed (also known as ‘temporary full expensing’). As of 7.30 pm AEDT on 6 October 2020 until 30 June 2023 (to include the extension announced in the 2021–22 Federal Budget).

Note: The instant asset write-off does not apply for assets you start to hold, and first use (or have installed ready for use) for a taxable purpose, from 7.30 pm (AEDT) on 6 October 2020 to 30 June 2023. You must immediately deduct the business portion of the asset’s cost under temporary full expensing.

in a nutshell, what are the Extra Changes to be aware of?

To make it easy for you, here’s a summary of the extra recent changes:

• You can claim Full expensing in the year of first use for new depreciable assets and the cost of improvements to existing eligible assets.
• For small and medium-sized businesses (with aggregated annual turnover of less than $50 million), full expensing now also applies to eligible second-hand assets.
• Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 which were purchased by 31 December 2020 under the enhanced instant asset write-off scheme.
• If eligible for the instant write off, you can still finance the asset’s purchase and instantly write it off.

Thornmoney can assist you with finance options for asset finance or equipment finance purchases of between $10,000 to $1,000,000. Our friendly Business Development Managers can assist you to get fast turn around asset finance loans.