Instant asset tax write-offs can benefit your business.
A positive cash flow within your business is important to maintain healthy growth. This can be rather tricky if you need to purchase large essential assets and equipment for your business.
Fortunately, the Australian Government has introduced tax incentives to stimulate growth, investment and job creation in business.
The two measures are:
- The Instant Asset Write-off Scheme applying to businesses with aggregated turnover of up to $500 million for eligible assets up to $150K each in value purchased before 31 December 2020 and used or installed by 30 June 2021; and
- Temporary Full Expensing under the 2020 Federal Budget JobMaker program applying to businesses with aggregated turnover of up to $5 billion for new and used eligible assets of any value purchased and installed by 30 June 2020.
This is extremely good news for many small businesses who are in the early phases of getting off the ground and need all the help they can get.
Here is everything you need to know about the instant asset write-off, and how you can use this to boost your business.
Instant Asset Write-off or Temporary Full Expensing?
According to the ATO website, under the 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.
The Instant Asset Write-off can be used for:
- Multiple assets as long as the cost of each individual asset is less than the relevant threshold; and
- New and second-hand assets.
It cannot be used for assets that are excluded from the simplified depreciation rules.
Currently, the threshold is eligible assets up to the value of $150K purchased before 31 December 2020 and used or installed by 30 June 2021.
From 1 January 2021, the thresholds change and the Instant Asset Write-off will only be available to small businesses with an aggregated turnover of less than $10 million and the asset value threshold will only be $1,000.
However, despite the sunsetting of the expanded Instant Asset Write-off Scheme, business with turnover up to $5 billion can now access the more generous Temporary Full Expensing of eligible depreciable assets unveiled in the October 2020 Federal Budget.
Under Temporary Full Expensing, from 6 October 2020 until 30 June 2022, businesses with turnover up to $5 billion can deduct the full cost of eligible depreciable assets of any value in the year they are first used or installed. The cost of improvements made during this period to existing eligible depreciable assets can also be fully deducted.
Which assets are eligible?
It’s important that you know exactly what may or may not be classified as an asset you can write off before you begin calculating the potential tax benefits into your projected profits.
“Temporary full expensing creates a strong incentive for businesses to bring forward investment to access the tax benefit before it expires …” as stated in the 2020-21 Budget.
Of course, you should consult your accountant or tax professional on the tax treatment of any asset or equipment you’re thinking of purchasing. This blog is for general information purposes and we don’t provide financial advice. Our expertise is in providing finance solutions to help businesses grow and unlock their potential.
If you’re looking into instant asset write-off because your business is struggling with cash flow you may want to consider your options on how you can access these initiatives.
Earlypay lends a helping hand to businesses across Australia with equipment financing for SMEs and invoice financing of unpaid invoices. From smaller start-ups to large enterprises, Earlypay may be able to help your business not only improve its cash flow but be able to redirect much-needed funds to areas of your business that really need it.
If you think your business can benefit from Earlypay's finance offerings and would like to find out more, please contact our helpful team today on 1300 760 205.