The $20,000 Instant Asset Write-Off has been a popular taxation measure. It was introduced in May 2015 and was set to end on 30 June 2017. It was then extended for a year, having received positive feedback from the small business community, and was due to wrap up in 2018.
As part of this year's Budget, it was announced that the scheme would be further extended to 30 June 2019.
So, what's the bad news?
The bad news is that not enough small businesses are taking advantage of the write-off, largely due to confusion around which assets are eligible and how the write-off operates. A massive 78% of small businesses aren't currently using the scheme. As a business owner, the write-off could help you update your equipment and keep your business operating smoothly.
So, how does it work?
The $20,000 write-off is part of the simplified depreciation rules for small businesses.
It is a deduction limit which allows small businesses to instantly write off any asset purchased with a value of less than $20,000, excluding GST. This means that instead of depreciating an asset over time and claiming part of the original expense over multiple years, you can claim the entire expense in the financial year in which the asset was purchased.
The initiative encourages small business to buy assets that they require without having to worry about depreciation, which simplifies yours accounts and bookkeeping. It also means that you save on tax, as you can claim the whole expense in one financial year, thereby lowering your taxable income.
For example, if you purchase a laptop for $2,000 you would ordinarily be required to depreciate the laptop over 3 years and claim one-third of the cost each year as an expense. However under the $20,000 instant write off, you can claim the whole $2,000 in one year!
Prior to the write-off limit being increased, it stood at $1,000. This made it difficult for owners to invest in business-critical equipment, as there was no tax incentive to support large expenditure. Under the new amount, you're incentivised to upgrade your equipment and keep everything in order, which in turn keeps you on the road to business success. There's nothing worse than having a business-critical truck, a piece of machinery or an essential appliance break down when you're working hard to keep new orders coming through the door.
Are you eligible?
There are a few key criteria that you will need to satisfy before you can take advantage of the scheme.
If you've been putting off purchasing new equipment because it's simply too expensive, you'll be excited to hear that purchasing second-hand equipment doesn't disqualify you from the scheme.
However, you'll need to qualify as a 'small business' under the relevant legislation. This boils down to the meaning of “small” and “business”, which we discuss in more detail below.
In order to be considered 'small,' your gross revenue must be less than $2million per year. This is a relatively simple requirement to meet, however, you may be grouped with other related entities for tax purposes, so it's important to check with your accountant and/or a trusted business adviser.
You must be conducting a business to be eligible for the instant asset write-off. Sounds obvious, right? The catch is that you need to be 'conducting a business' in the way that the legislation describes 'conducting a business'.
Examples of businesses include tradespeople, restaurants, gyms and real estate agencies. Examples of non-businesses include investment property owners, share traders and investment trusts.
The ATO provides some examples to illustrate the point. Check them out here.
Keep in mind that if you are buying equipment for your business, but you plan to use it for personal use as well - for example, a work vehicle that will double as the family car - you can only claim the proportion of the item that is being used for business purposes. These calculations can get complicated, so make sure you seek help or run it past your accountant.
What happens if I buy an asset worth more than $20,000?
If you purchase an asset over $20,000 then it must be placed in the 'small business general pool'.
The general pool is part of the simplified depreciation rules. If you choose to use these rules you must adopt all of the rules that apply to the general pool. However, the pool is also tax effective as the depreciation rates for the pool are generally higher than the rates for individual items. Essentially, you can claim more of the expense at a faster rate and if the value of the pool drops below $20,000 you can claim it as an instant write-off.
What if I don't have the money to buy the equipment upfront?
If you've consulted a professional - perhaps your accountant, tax lawyer or trusted business advisor - and want to take advantage of the $20,000 Instant Asset Write-Off, our dedicated team of credit specialists may be able to help you.
If your cashflow doesn't allow you to purchase the equipment upfront, there are a number of financing options that may be available to you. At Valiant, we help small businesses obtain funding for new equipment, refurbishments, expansions, outstanding debts and much more. We match business owners with loan options from banks, peer-to-business lenders and alternative finance providers, to give you the best options from across the market.
Give us a call today on 1300 780 569 to explore your options.
Please note: All advice contained within this blog is general in nature. Always seek professional advice before making any financial decisions.
Nat is the Communications Manager at Valiant Finance. She has a double degree in Journalism and Law, and a background in the fintech space, hailing from Asia's largest fintech hub, Stone & Chalk.