The Federal Government’s proposed increase to the instant asset write-off threshold presents a big opportunity for businesses, encouraging them to bring forward any planned (or unplanned) capital spending.
What is changing?
The instant-asset write-off threshold is being increased 5-fold from $30,000 to $150,000, on a per asset basis.
The group of businesses that can access this instant write-off is also expanding from those with annual turnover of up to $50 million to now include businesses with annual turnover up to $500 million.
The changes are in immediate effect – as of 13 March 2020, and will end on 30 June 2020.
What is classified as an eligible asset?
An immediate deduction can be claimed on any depreciable asset purchased either new or second-hand for your business, such as:
- plant and machinery
- computers, laptops and tablets
- office furniture and equipment
- motor vehicles.
Importantly, under the instant asset write-off rules, the asset must not only be purchased but have been either used or installed ready for use in the year it is intended to be claimed. By way of example, a 3D printing machine that was purchased and stored in the office but not yet configured for the intended business purpose would not be eligible.
Accordingly, for businesses wanting to take advantage of the stimulus package, the asset needs to be installed ready for use or in use before 30 June 2020.
What is claimable?
Asset purchases need to be made by 30 June 2020 by the entity intending to make the claim. The write-off is available for multiple assets, as long as each asset’s purchase price is less than the $150,000 threshold.
In terms of ensuring an asset’s purchase price is below the $150,000 threshold, it is important to know what the tax office defines as an asset’s cost.
According to the ATO, “The cost of an asset includes both the amount you paid for it and any additional amounts you spent on transporting and installing it ready for use. The cost also includes amounts you spent on improving the asset”.
In calculating the amount that is claimable, any proportion of the asset’s use that is for personal reasons must be subtracted. If 20% of a motor vehicle’s use is for private purposes, 80% of the purchase price is classified as the taxable purpose proportion of the asset and is considered tax deductible, under the stimulus package.
Only assets with a gross cost up to the $150,000 threshold are eligible. For example, a $200,000 vehicle used 75% for business purposes would not be eligible.
- Assets purchased from overseas are eligible; and
- Businesses can finance the purchase of assets by way of loan or chattel mortgage / finance lease. Please consult us if using loan funding, as certain lease types (operating leases) do not transfer ownership to the leasee and may impact eligibility for the instant asset write-off.
Is GST included or excluded in the threshold limit?
Whether the threshold is GST exclusive or inclusive will depend on your GST status.
If a business is registered for GST, the instant asset write-off threshold is exclusive of any GST.
If a business is not registered for GST, the instant asset write-off threshold is inclusive of any GST.
Eligible assets are able to be written off in the year they are first used or installed ready-for-use. Given the short window increasing the instant asset write off ($150,000) and eligible businesses ($500M revenue), this must happen before 30 June. From 1 July 2020, the programme will revert to $30,000 per asset for small business entities only.
This means that for all assets purchased before 30 June 2020, the full cost will be wholly deductible in the business’s 2019/20 tax return, rather than being depreciated over numerous financial periods bringing forward a significant cash benefit.
These are indeed trying (and unprecedented) times for many businesses, families and our broader community. We are here to help, so if we can be of any support or assistance, please don’t hesitate to get in touch with one of us here at CharterNet.