Instant Asset Write off
2020 has been a whirlwind for Australians and businesses alike. Particularly for those existing within the hospitality and tourism sector, this year has seen its unique struggles. One of the few positives of 2020 is the increase in government financial incentives that offer not only financial support but rare business opportunities to Australians. Among these opportunities is the Instant Asset Write-Off. This government scheme has businesses across Australia are scrambling to make the cut and capitalise off the record high threshold.
What is the instant asset write-off?
By now most Australian businesses would be familiar with the term instant asset write-off. Instant asset write-offs are a deduction in income tax or business tax that a business receives when they purchase an asset or pay for an eligible business expense (ATO 2020). See the ATO’s list of business expenses and assets excluded from the instant asset write off here.
What’s changed with the instant asset write-off?
Surprisingly the instant asset write-off has been around for nearly a decade. The government incentive has recently received a big boost that brought it into the spotlight. The main changes to the scheme are the increase in threshold amount and the broadening of the eligibility criteria. These changes have people across Australia buzzing because more businesses are eligible for a significantly higher tax break on their assets.
How much has it changed by?
The instant asset write-off was last changed in March of 2020. Since then, the threshold amount for the instant asset write-off has increased from $30,000 to $150,000 (ATO 2020). Meaning businesses can now receive a tax break on the purchase of eligible assets valued at up to $150,000 (ATO 2020). This is a huge increase from the before mentioned $30,000.
Not only has the threshold increased by $120,000, but more businesses are now eligible to take part in the scheme. According to the ATO, Australian businesses with an aggregated turnover of less than $500 million are now eligible to participate (ATO 2020). This is compared to the maximum aggregated turnover of $50 million before the scheme was revised (ATO 2020).
Why has it changed?
The scheme is historically revised every six months and has been on the climb since the COVID-19 pandemic struck Australia and our economy. The instant asset write-off scheme comes as part of the Federal Government’s Economic stimulus package for COVID-19. The new and improved instant asset write off is aimed at boosting the Australian economy by making investment activities more affordable and achievable for businesses. In doing so, the scheme is actively creating more business and job opportunities across the country.
How long will it be in place?
These changes are only temporary. The current scheme expires on the 31st of December 2020 (ATO 2020). The ATO has announced that from January 2021 the threshold and maximum aggregated turnover will drop (ATO 2020).
What to consider
According to Tax & Super Australia senior tax counsel John Jeffreys, the scheme is only beneficial to businesses with a positive taxable income Jotham Lian. (2020). Simply put, without a taxable income, a business cannot benefit from a tax deduction. While businesses that are in the red this financial year may need to sit this one out, Mr Jeffreys goes on to explain that this is a rare opportunity for businesses that have managed to maintain a positive taxable income throughout the obstacles of this year Jotham Lian. (2020). After the scheme drops back in January of 2021 it is unlikely Australian business will see such an opportunity again.
So with the door closing on what is shaping up to be a once in a lifetime opportunity, how can businesses capitalise off the instant asset write-off before it’s too late? Well, the most important thing to consider is that any asset purchased needs to be installed and usable before the 31st of December. If the asset misses the date cut-off it will likely not be eligible for the inflated threshold and aggregated income criteria.
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Australian Government. Australian Taxation Office (ATO) (2020). Instant asset write-off for eligible businesses. Available at: https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/Simpler-depreciation-for-small-business/Instant-asset-write-off/ (Accessed: 11 November 2020)
Jotham Lian. (2020). $150k instant asset write-off set for significant drop. Accountantsdaily. Available at https://www.accountantsdaily.com.au/tax-compliance/14423-150k-instant-asset-write-off-set-for-significant-drop (Accessed 5 November 2020).