As part of the federal government’s response to the COVID-19 outbreak, the existing instant asset write-off initiative has been extended from $30,000 per asset up to $150,000 per asset. This gives businesses with annual revenue up to $500m an incentive to purchase tools, vehicles, computer hardware, furniture, or other equipment.
These expanded measures are already in effect and the scheme will close on June 30, 2020.
The rules allow businesses to immediately write off the cost of assets – under the threshold – and claim a tax deduction for the business portion of the expense in the first year the asset is used or installed.
It is important to note that the depreciation a business owner can claim is still limited to $57,581 for cars1.
The government is hoping that these initiatives will encourage investment and provide a much-needed cash injection to the economy. Businesses who finance the purchase of assets are equally eligible to the instant write-off scheme and can continue to expense appropriate interest payments over the life of the loan.
This opens up a number of options for business owners in need of a new commercial vehicle, which could include earth moving equipment, a tractor for a farm or vans, and light trucks.
As a small business owner, what types of assets should I consider purchasing?
Generally, assets employed in the earning of assessable income can be considered, with a few exceptions. We strongly recommend you speak to your accountant or tax professional to see how any large purchases might impact your cash flow. This obviously needs to be weighed up against the benefits that the asset would bring to your business.
1What can be classified as a car?
For this initiative a car is defined as a vehicle “designed to carry a load of less than one tonne and fewer than nine passengers”
How does the $150,000 immediate write-off work?
The instant asset write-off allows businesses (with an annual turnover under $500 million a year) to claim immediate deductions for new or second-hand assets (such as plants, vehicles, tools, and other equipment). The assets must be used or installed ready for use, in the financial year you’re claiming for. The current initiative is set to close on June 30th, 2020 and from 1 July 2020 the instant asset write-off will only be available for small businesses with a turnover of less than $1,000,000 and the threshold will be $1,000.
When it comes to completing your tax return for this financial year, you can claim the business portion of the eligible asset’s cost.
Can multiple assets be purchased? Does the total amount claimed need to be under $150k?
Yes, multiple assets can be purchased – even if they are identical the $150k threshold is applied on an asset-by-asset basis. So long as the cost of each eligible asset is under $150k the write-off can be made.
Are second hand assets eligible?
Yes. Some exclusions and limits apply such as horticultural plants and software allocated to a software development pool. See the ato website for more info.
What if I am trading in a vehicle to buy a new one?
A trade-in has no impact on the cost of an asset. The trade-in just reduces the net amount paid for the asset, not the cost of the asset. The full cost can still be written off.
What businesses are eligible for the immediate write-off?
Businesses with an annual turnover under $500 million per year.
What if the asset is not wholly used for business purposes?
E.g. Bob purchases a ute for his lawn mowing business. He pays $30,000 for the ute and it is used for business 60% of the time. Bob can write off $18,000 (60% of the cost) as the price he paid for the ute is under the $150,000 cap.
What type of financing is allowed? Are there any exceptions?
Commercial loans, chattel mortgages and hire purchases all qualify. Leased assets do not qualify as the business itself does not take ownership of the asset.
How long does it take to get a business loan approved?
Each business is unique and the approval time can therefore differ. Generally speaking, loans can be approved for eligible applicants within days as opposed to weeks. Speak to a Yes Loans broker for more information on how we can assist you and advise on our lenders approval criteria.
The information cited above is provided on a general advice basis and should not be considered as a replacement for seeking your own professional advice, appropriate to your business. Yes Loans recommends that you seek your own professional advice prior to any equipment purchase, to confirm eligibility.