What better time to splash some cash than around the time of a federal election campaign and what better way to secure the votes of small business then to offer a great big tax incentive.
The federal budget announcement regarding the instant asset tax write off scheme, in April, was one of the small business tax incentives that perhaps helped secure their position as leaders after the election.
The coalition announced it will increase the instant asset tax write off threshold from $25,000 to $30,000 and expand the eligibility to companies with turnovers of up to $50 million.
The Coalition Party Small Business Sweetener
Treasurer, Josh Frydenberg, announced increasing the threshold to $50 million would make an additional 22,000 small businesses eligible. Under this new expansion of the instant asset write off scheme around 3.4 million small businesses will be eligible to claim.
When Does it Apply?
The new rules will be effective immediately from budget night 6th April 2019 and will be in place until June 30th, 2020. The government has baulked at the call to make the scheme permanent, instead opting to extend it for yet another year.
This effectively creates a tiered system for the 2019 financial year.
- The first tier will be the $20,000 threshold for depreciable assets obtained before 29 January 2019;
- The second being the $25,000 threshold for assets first used or installed between 29 January 2019 and 2 April 2019;
- And the third tier being the $30,000 threshold for assets first used and installed after the 2 April budget announcement and before 1 July 2020.
What’s The Purpose?
This pre-election promise is part of a plan, suggesting the expansion will improve cash flow for small and medium businesses, while boosting spending and investment by owners.
Good Policy or Point Scoring?
According to ATO data, fewer than 350,000 businesses claimed the instant deduction under the program in 2016-17 financial year. The average amount claimed was just $11,000.
Australian small business and family enterprise ombudsman Kate Carnell is pleased the limit has been increased, although says the awareness of the scheme remains an issue.
Carnell believes, many small businesses don’t know about the instant asset write off and believes it is important the government lets small business owners know their entitlements.
So How Does the Instant Asset Write Off Work?
Assets costing less than the applicable instant asset tax write off threshold are 100% written off in the year they are bought and used (or installed ready to use).
Small business operators and owners will get the benefit of an immediate deduction, rather than depreciating an asset over the term of its useful life. This applies whether the asset is new or second hand.
This is not a refund. The instant asset tax write off is a tax deduction that reduces the amount of tax your business has to pay.
What Assets Are Included?
- Assets that cost less than $30,000 (if acquired between 2 April 2019 and 1 July 2020).
- Assets that are directly related to your business’s income producing activity e.g. computers, phones, vehicles, tools, machinery, equipment, websites etc.
- Certain structures of agricultural property that would normally classify as capital works.
What Assets Are Not Included?
- Purchases that cost more than $30,000
- Any assets leased out (or expected to be leased out) for more than 50% of the time on a depreciating lease.
- Assets allocated to a low-value pool
- Horticultural plants – e.g. grape vines.
- Capital works including buildings and structural improvements (written off over a longer time).
The instant asset tax write off scheme can be useful in tax planning for businesses who want to bring forward capital expenditure.
It is important to remember that you still need the cash flow available to make these eligible asset purchases.
If you are considering making a business asset purchase you should talk to your accountant first. As accountants, we can help you determine if this is the right time for your business to make a purchase and utilise the instant asset write off scheme.
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