Top tips for the $150K instant asset write-off

Under the scheme, which was introduced by the Federal Government as part of its coronavirus stimulus measures, eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used, or installed ready for use, up to a value of $150,000.

Importantly, the Government also recently announced that the scheme has been extended until 31 December 2020, with potentially millions of Australian businesses set to benefit.

Here’s what you need to know.

Not all businesses are eligible – but most will be

The instant asset write-off scheme has undergone many iterations in recent months, which can create confusion for businesses trying to understand if they are eligible. At a basic level, the scheme is now available to any business that has an aggregated turnover of less than $500 million (up from $50m) and the entity purchasing the asset must be classified as a ‘trading business’.

Take a look at our handy fact sheet for more information about eligibility for the scheme.

Not all assets are eligible

While the instant asset write-off is designed so that it can be used for a wide range of business purchases, there are some restrictions and limitations that business owners should be wary of.

The ATO has specified that capital works assets and horticultural plants (including grapevines) are two of the key asset classes excluded from the scheme. Of course, it is worth checking with your accountant or tax adviser for more information on your individual circumstances.

In terms of what is eligible, any asset must have a purchase price of $150,000 or less (excluding GST) and be acquired between March 12 and December 31, 2020. The asset or assets can be new or used and can be purchased via private sale.

There are no limits on the number of eligible assets

Provided that each individual eligible asset is valued at $150,000 or less, multiple assets totalling more than $150,000 can be claimed under the scheme.

However, it is important to note that while the scheme is designed to reduce the amount of tax your business pays, if it is structured as a ‘company’, the most you would be eligible to receive back would be 27.5% for small businesses or 30% for large businesses.

While the scheme is designed to boost the economy by encouraging businesses to stick with investments in assets they had planned, spending for the sake of spending doesn’t make good business sense.

If it won’t be ready to use, don’t claim it

Neil Oakes, Perks Director, Tax Consulting highlights an important technicality that business owners should be mindful of under this scheme.

“It’s important to note that the asset can only be claimed for an immediate deduction in the year the asset is first used, or installed ready for use.  For example, as an owner of a farming operation, if you purchase a piece of machinery in June 2020, but if it won’t be delivered, on-farm and operational until September 2020, it would need to be claimed for the Instant Asset Write-off in the Financial Year ending 2021,” states Neil.

Approach the extension with caution

As mentioned, the Federal Government recently announced that the $150K instant asset write-off scheme has been extended until the end of 2020. It is important to note though, that business owners wanting to take advantage of the scheme before the end of this financial year will need to make an eligible purchase before the end of June 2020.

With no guarantee that the scheme will be extended further beyond the December 31 deadline, the 2020-21 Financial Year could very well be the last instance where the $150,000 threshold applies. So if you were considering purchasing an asset in the near future and your business has the cash/ financing available, it may be wise to consider purchasing the asset and having it operational before the deadline passes.

If you would like more information about the instant asset write-off, your businesses eligibility or to understand how to best position your business to capitalise on the scheme, get in touch with your Adviser or Neil Oakes and our Tax Consulting team.