$20,000 Instant Asset Write-off Extension Explained
Is your small business planning to purchase a major asset this year? You can get a business loan to purchase the asset before 30 June 2019 and take advantage of the small business tax break.
For small businesses who haven't used this concession previously, here's what you'll need to know to take advantage of the instant asset write-off before it expires.
What is the SBE Instant Asset Write-Off?
The small business entity instant asset write-off is a tax benefit introduced to benefit small business purchasing assets with a value up to $20,000, allowing the business to instantly write-off eligible depreciating assets that cost less than $20,000 that are acquired and first used or installed ready for use before 30 June 2019.
The scheme was first introduced on 12 May 2015 and made initially available to businesses with a turnover of up to $2 million, but this was extended to businesses with a turnover of up to $10 million when the federal government's definition of small business changed.
From 1 July 2019, the instant asset write-off threshold will revert to $1,000.
Who is eligible for the $20,000 instant asset write-off?
All small business entities with an aggregated turnover of between $2 million and $10 million can claim the instant asset write-off.
Up to 67% of small business owners aren't taking advantage of the $20,000 write-off.*
Most assets used for a taxable purpose are eligible for the $20,000 instant write-off.
Assets that don't qualify include horticultural plants, building construction costs and other capital works, assets leased to another party, a depreciating asset lease, and in-house software.
Only 10% of small businesses could correctly identify items that can be claimed for an instant write-off.*
There also needs to be a direct relationship between the asset purchased by the business and the way the business generates income. Check with your accountant if you are unsure.
Assets greater than $20,000 will continue to be placed in the general small business pool, and depreciated according to the schedule, at 15 per cent the first year and 30 per cent each following income year. Note that if your small business asset pool balance is less than $20,000 over the financial year, including existing assets, the entire pool can be immediately deducted.
Who's taken advantage of the write-off?
In the first year of the scheme, 99,000 businesses took advantage of the tax write-offs, claiming a total of $415 million (before the scheme was introduced $165 million in write-offs were claimed).
In October 2017, the second year of the write-off, the average amount claimed had increased from $4,000 to $9,000, and a further 50,500 businesses had taken advantage of the write-off.
What do you really get from the instant write-off?
The $20,000 instant asset write-off isn't a free handout. When you claim the deduction, you are bringing forward tax deductions that you would have claimed anyway. The advantage of claiming the instant asset write-off is that you get a cash injection rather than a trickle through your tax returns.
The 'instant asset write-off' is claimed on your next business tax return, not at the time of purchase.
How can you claim the instant asset write-off?
You can claim the write-off as many times as you like, for multiple individual purchases. Here's what you need to consider before going ahead with your purchase:
Should you make the purchase now?
Your business will still need to fund the purchase for the period until you claim the instant asset write-off, which is only a portion of the purchase price.
The instant asset write-off is particularly useful for businesses intending to bring forward capital expenditure at the end of the financial year.
Remember, you should only make the purchase where:
- The equipment has an immediate benefit to the business
- Your cash-flow supports the purchase.
Buying second-hand assets
You can purchase second-hand vehicles, equipment or machinery to claim the instant asset write-off.
Assets for mixed business and personal use
If you are buying an asset that will be used part of the time for personal use, you can only claim the write-off for the portion of the asset used in the business.
For example, if you have a vehicle that's used 75 per cent for business and 25 per cent for personal use, you can claim the instant write-off for 75 per cent of the purchase price.
You won't get a $20,000 tax refund
The instant asset write-off reduces the amount of tax that your business has to pay, enabling the business to claim depreciation as a one-off claim. So you'll get back, at most, a percentage of the purchase price (27.5 per cent in 2017-18). If you expect to make a tax loss this financial year, there may not be any short-term benefit from claiming a larger deduction with the instant write-off.
Can you fund the purchase with a loan?
As long as your business cash-flow supports the regular loan payments for the amount that you need to borrow, you can claim the instant asset write-off this financial year using finance to fund the purchase.
For specific information on getting finance for an asset to claim the instant write-off before 30 June 2019, you can get advice from an expert commercial finance team.
*according to a national survey by H&R Block and Officeworks.