Instant Advantage with Asset Write-off Extension

Overview:

Accounting Director, Matthew Petersen looks at the extended Instant Asset Write-off through an Agribusiness lens, providing tips for farmers to make the most of this lucrative opportunity before the end of 2020. As published in the Spring 2020 edition of INGRAIN Magazine.

Under the current instant asset write-off scheme, 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 has also extended it until 31 December 2020 – a great benefit to agribusiness, considering some regions have had a tough couple of years.

The instant asset write-off scheme has undergone many iterations this year, which can create confusion in understanding the eligibility criteria of the business or the asset. 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’.

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 property owners should be wary of. It’s 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.

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 structed as a ‘company’, the most you would be eligible to receive back would be 27.5% for small businesses or 30% for large businesses. With this year’s cropping season kicking off to a good start, it’s a good idea to look into capital purchases you were already considering – spending for the sake of spending doesn’t make good business sense.

If you need finance for your asset purchase, keep in mind that most banks will want to see Financial Statements, tax returns for any beneficiaries/ guarantors, a list of your business’ financial commitments, your latest Business Activity Statement and bank statements. Depending on the lender and the time of year, the turnaround times for approval are around 24 – 48 hours from the time you provide all necessary paperwork. An agribusiness finance broker can help streamline the process, working in conjunction with your Accountant / Business Adviser.

While machinery is always top of mind when it comes to on-farm assets, if you don’t already have some technology smarts to aid data-tracking and reporting, the instant asset write-off could be your best opportunity at recouping some of the initial outlay for this. The return on investment for cloud-driven technology that will give you real time insights and allow for quicker and easier decision making, will pay off year after year when you free your time by eliminating manual data entry.

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, if you purchase a piece of machinery in September 2020, but if it won’t be delivered, on-farm and operational until January 2021, it won’t be eligible as it would have exceeded the 31 December 2020 deadline. 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 it’s wise to get your eligible purchase finalised and delivered before the end of the calendar year.