By now you may have already noticed marketing banners from popular business vendors such as car companies and other retailers about the possibility to instantly write-off assets with a value up to $150,000.
What is an instant asset write-off?
An asset write-off is a one-off tax deduction where eligible businesses can claim immediate deduction on the purchase of an asset in the same year, instead of claiming depreciation over the number of years. The original threshold was $1,000 then it increased to $20,000 from July 2016; again increased to $30,000 from April 2019. And finally, as a government stimulus package for COVID the threshold has been increased to $150,000 from 12 March 2020.
Originally the $150,000 instant asset write-off cut-off date was 30 June 2020 but recently this has been extended up to 31 December 2020.
What does it mean?
This means an eligible business can claim a deduction of up to $150,000 in the relevant financial year that an asset is purchased.
If you have purchased an asset on or before 30 June 2020, then you can claim it as deduction in the 2019-20 tax return and if you are planning to purchase before 31 December 2020, then you will be able to claim a deduction in your 2020-21 tax return. Is considered an asset any computer equipment, medical furniture, utility equipment, various dental equipments.
After 31 December the threshold will revert back to its original amount of $1,000.
What are the eligibility criteria?
To be eligible you must:
- be in business and hold an Australian Business Number (ABN);
- have an aggregate turnover of less than $500 million;
- have purchased and used the asset in the year the write-off is claimed; and
- ensure the cost of the asset is less than the threshold.
Note: this does not apply for excluded assets.
Please visit ATO link to understand what are excluded assets.
Frequently Asked Questions about Instant Assets Write-offs
What is the tax benefit?
It is important to note that writing an asset off immediately, does not mean you get it for free. It means you get a discount equal to your marginal tax rate. For example, say you purchase a business asset for $2,000 and you earn between $90k and $180k annually. Your marginal tax rate is 39% including the Medicare Levy, so you are essentially getting a discount of $780 which you will see when you lodge your tax return.
GST inclusive or exclusive value?
If you are registered for GST and you can claim full GST credit on your purchases (which means you use the asset 100% for business purposes) then you exclude the GST amount. So, the maximum write-off amount of $150,000 is exclusive of GST. Note that this will not apply to a motor vehicle because of the DCL (explained below). If you use the asset partly for private purposes and the total price minus the business percentage of GST claimed is less than $150,000, then you will be able to immediately deduct the business portion less GST claimed.
Can the write-off apply to a motor vehicle?
If you are planning to buy a car then you need to be mindful of the special depreciation rules for motor vehicles. You may not be able to claim the total purchase price of the car even if it is less than $150,000. This is because the Depreciation Cost limit (DCL) for cars will apply, for the 19-20 financial year the cost of car is capped at $57,581 (inclusive of GST if you are registered). This means if you purchase a car which costs $70,000 and you use it solely for business purposes, then you can only claim $57,581 of the $70,000.
Furthermore, the instant asset write-off is limited to the business portion of the car limit for the relevant income tax year. The business use percentage can be calculated by keeping a log of business and private travel for 12 consecutive weeks.
For example, if your logbook shows 50% business use, the total you can claim under the instant asset write-off is $28,776 which is 50% of $57,581.
For the 2020-21 financial year, the car cost limit is $59,136.
Note: If your vehicle is not considered a passenger vehicle, the car limit does not apply. Please visit the ATO websites if you qualify for this.
Do I need to apply?
No, you do not need to apply. The asset’s write-off will be applied when you prepare and lodge the relevant year’s Income Tax Return.
How many assets can I buy?
There is no limit to the number of assets you can buy and qualify for the write-off as long as the total price of each asset is under $150,000.
Timing of purchase and use of the assets?
If you are planning to claim the instant asset write-off for the 2019-20 financial year, to be eligible you should have bought and had the asset installed ready for use before 30 June 2020. For the 2020-21 financial year the cut-off date for purchase and installation is 31 December 2020.
I am not in business, can I just get an ABN and purchase a car or other assets under the ABN to be eligible?
No; for the instant asset write-off, you need to be in business and the assets you buy will need to be used to produce assessable business income. If you are not operating a business in Australia, you are not eligible for an ABN.
Instant assets write-off are a good taxation strategy, on the right purchases, at the right time. If you want more information on whether what you can write-off and how, get in touch with one of our Tax & Accounting Consultants by calling 1800 376 376 or book a free no-obligation consultation.
Disclaimer: * The information contained in this site is general and is not intended to serve as advice. DPM Financial Services Group recommends you obtain advice concerning specific matters before making a decision.