The government’s latest extension to the instant asset write-off (IAWO) tax concession continues the good news for small and medium businesses.
Details of the concession
In effect, there are now two overlapping asset write-off schemes in place – IAWO and ‘temporary full expensing’ – and small and medium businesses qualify for both. It means that the total cost of new assets can be written off as a tax deduction in the financial year in which they were first purchased and/or installed ready for use.
The details for the 2020-21 and 2021-22 tax years are:
IAWO - New assets costing up to $150,000 each, purchased between 1st July 2020 and 31st December 2020, can be fully written off in the current tax year if first used (or installed and ready to use) before 30th June 2021.
Temporary full expensing - New assets purchased from 7th October 2020 (i.e. after the federal budget announcement) can be fully written off in the financial year they were installed and ready to use. There is no upper limit on cost, and the concession applies until 30th June 2022.
The cost of improvements to existing assets can also be fully expensed – as well as second-hand assets if your annual turnover is under $50 million.
In simplified terms, small and medium businesses can rely on IAWO for assets purchased between 1st June and 6th October 2020, and temporary full expensing for assets purchased between 7th October 2020 and 30th June 2022.
How to benefit from purchasing equipment
If you’re a farmer, you could, for example, bring forward the planned purchase of new machinery such as tractors, harvesters and loaders, and take advantage of a full tax deduction in both the current tax year and the next one.
If the result for your business is a loss for tax purposes, you could even qualify for a refund of tax paid in a previous year. This comes as a result of the new ‘loss carry back’ provisions also announced in the federal budget.
How to benefit from purchasing vehicles
Your business can also write off the full purchase cost of new and second hand vehicles, although there are some limits for passenger vehicles you need to be aware of.
For passenger vehicles designed to carry a load of less than one tonne and fewer than nine passengers, the maximum write-off amount is $59,136 in 2020/21.
However, trucks, delivery vans, utes with a payload of one tonne or more, and vehicles with a passenger capacity of more than nine, can all be fully written off. But remember the $150,000 cost limit if they were purchased before 7th October 2020.
Base your purchase decisions on business needs
Major asset purchases need careful consideration, rather than being done in a rush to lock in tax benefits. We suggest that you discuss your plans with your accountant or business advisor to find out exactly what you can claim and how it will affect your profitability and cash flow.
But if and when you’re ready to go ahead, your finance broker can advise you on the most suitable finance options for your business.