In last month’s instant asset write-off article, we outlined the instant asset write-off tax concession for businesses, with particular reference to the new provisions introduced by the Government in March 2020 in response to the economic impact of COVID-19.
In simple terms, it means that businesses with an annual turnover of less than $500 million are able to claim an immediate tax deduction in the current financial year for individual assets purchased costing less than $150,000 each.
The aim of this month’s article is to provide more detail about business eligibility, applicable dates and qualifying asset types.
Eligible business types
From 2 April 2019, the instant asset write-off concession applied to all businesses with an aggregated annual turnover of less than $50 million. This has now been extended to businesses with an aggregated annual turnover of less than $500 million.
To be eligible, you must be a business entity and meet the annual aggregated turnover restrictions mentioned above. The ATO classifies business entities as sole traders, partnerships, companies, or trusts that operate a business during the financial year.
There are different thresholds and requirements to keep in mind, based on when the asset is installed and ready for use:
Assets purchased and installed ready for use between 7:30pm on 2 April 2019 and 11 March 2020
Individual assets with a total cost of less than $30,000 may be written off immediately as an expense for tax purposes in the financial year the asset is first used, or installed ready for use.
Assets purchased from 7.30pm on 2 April 2019 and installed ready for use between 12 March 2020 and 30 June 2020
Individual assets with a total cost of less than $150,000 may be written off immediately as an expense for tax purposes in the financial year ending 30 June 2020.
Qualifying asset types
You can instantly write-off most assets costing under $150,000 used in your business. Sole traders, in particular, need to note that only the business use portion of the asset can be claimed. That is, if you use the asset for both business and personal purposes (for example, a motor vehicle or a computer), you must assess what percentage of the asset is for business use and only write-off that portion of the asset’s cost as a business expense.
Qualifying assets include vehicles (up to the car limit where applicable), plant and equipment, agricultural equipment, office furniture, computers, phones, most software, some components of office and shop fit-outs and many more. These assets must individually cost less than the thresholds during the applicable dates. You can also write-off multiple qualifying assets, not just one.
There are, however, a few exclusions including:
Assets purchased for the purpose of leasing out
Horticultural plants including grapevines
How to lodge a claim
To lodge an instant asset write-off claim, you need to include the total cost of each one of your qualifying assets installed ready for use in the expenses section of your tax return for the financial year ending 30 June 2020. Your taxable business income will be reduced by the total cost of qualifying assets installed ready for use. Lower taxable income translates into less tax payable.
If you have your tax return prepared by an accountant, they will take care of this for you. It is worth having a discussion with them before you make your purchase.
Contact us if you need asset finance
There’s not much time left to get your assets purchased and installed ready for use before 30 June 2020.
To find out more about the asset financing options available to you, please contact your broker directly.