This article highlights the instant asset write off concession and the changes the Government have announced (which are now law) regarding this concession and the eligibility requirements.
We note, we now have a tax system with three ways to claim deductions on asset purchases.
What is the instant asset write off?
The instant asset write off is a concession which allows eligible businesses to purchase an asset under the relevant threshold dollar value and fully depreciate the asset in the financial year in which the asset is first used or installed ready for use. This applies to assets regardless if they are purchased new or used.
The entire cost of the asset must be less than the threshold dollar value and can not be reduced, for example, by a trade in of another asset. The entire cost would include freight and installation costs.
If your business entity is registered for GST, then the asset value and associated costs to have the asset ready for use is net of GST. If the business entity is not registered for GST, then it is the gross amount (including GST) that is depreciated, and your instant asset write off threshold is inclusive of any GST.
We note this measure is not a tax rebate, it is a tax deduction and the impact of the tax deduction will depend according to your tax rate.
If you are a Small Business Entity (SBE), you must use the other SBE depreciation concessions (that is pooling of assets to be depreciated above the instant asset write off threshold). Medium businesses (see below, which are newly eligible to access this concession from 7.30pm 2nd April 2019) simply depreciate assets above the threshold as they have done normally.
If you sell an asset deducted under the instant asset write off concession, the entire proceeds are assessable income in the year of sale.
Instant asset write off eligibility
In order to access the concession, you must be classified as either an SBE or a medium business, in the income year you want to access the concession.
An SBE is a business entity with a turnover up to $10 million. A medium business is a business entity with a turnover above $10 million but less than $50 million. Therefore, a business entity with an aggregated turnover of less than $50 million can access the instant asset write off concession. Medium businesses are newly eligible for this concession, which we discuss below.
Government Changes to the instant asset write off threshold and eligibility
The Government announced on the 29th of January 2019 the increase to the threshold from $20,000 to $25,000 effective immediately. The threshold was again increased on the release of the 2020 federal budget (2nd April 2019) with the changes to again be effective immediately pushing the instant asset write off up to $30,000 per asset through to 30 June 2020.
Another major announcement on budget night regarding the concession was the ability for medium sized businesses to access the instant asset write off, which was previously only available to SBE’s. To be regarded as a medium business your aggregated turnover must be above $10 million but below $50 million. This now means that from 7.30pm on the 2nd of April 2019, any business with a turnover under $50 million can instantly claim a tax deduction for the purchase of an asset up to $30,000.
Due to these Government changes, the timing of purchases with the 2019 FY will be critical as to whether the concession may be applicable due to different thresholds within the one year. The table below provides an overview:
The Government has also announced the instant asset write off concession will be extended until 30th June 2020 rather than previously ending on the 30th of June 2019. We do not know if this will be extended again but we expect an update as we get closer to the end of the 2020 Financial Year.
Article by Corey Demaine, Accountant, Rogerson Kenny Business Accountants May 2019