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Instant Asset Write-Off
Running a business

What is the Instant Asset Write-Off?

Purchasing assets for your business can be a big expense. To help reduce the burden, the instant asset write-off was introduced so that eligible businesses can claim an immediate deduction for the business portion of the expense in the year the asset was first used.

If you’re looking to benefit from this tax break, read this article to find out important information about the subject, such as what assets are included, the eligibility criteria, and how to claim instant tax write-offs, amongst many more.

What Is Instant Asset Write-Off? 

The Instant Asset Write-Off measure allows eligible businesses to claim an immediate deduction for the business cost of an asset in the year that the asset was first used or installed (ready for use). 

Businesses can deduct eligible purchases by using this form of accelerated depreciation and reducing a business’s taxable income. This provides the industry with a cash flow benefit that matches the rate at which the business has been taxed. 

This is because the instant asset write-off allows businesses to invest in new assets and claim an immediate tax deduction on those assets. This not only stimulates the Australian economy, but the industry as a whole, by giving businesses the opportunity to purchase assets needed to create new and beneficial products. 

Another advantage is that as long as each asset costs less than the relevant threshold, it can be used for multiple assets. This is also applicable to new or secondhand assets. 

Businesses will need to apply simplified depreciation rules to claim the small business instant asset write-off.

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What Assets Can Be In Included In The Write-Off? 

Australian businesses can claim an immediate deduction for the business portion of the cost of capital assets purchased. Business assets can include:  

  • Fixtures and fittings  
  • Business tools and plants

  • Cars, utes and other vehicles used for business purposes (deductions for vehicles are typically capped during income years. For e.g: $68,108 during 2023/2024)

  • Solar panel installations
  • Security equipment like CCTV cameras
  • EFTPOS, laptops and other technology used for business purposes
  • Furniture used for business purposes

Eligibility Criteria for Instant Asset Write-Off 

Eligible businesses typically have an aggregate annual turnover of less than $500 million. However, if you are a medium to large business, it’s important to note that aggregate turnover includes any business connected with your business. This means the turnover of any parent companies, overseas parent companies, and subsidiaries is included. 

In addition, businesses with an aggregate turnover of less than $5 billion may also claim a similar tax break under the temporary full expensing* scheme. If a business doesn’t meet the less than $5 billion requirement, an alternative income test can be applied. In this, the aggregate turnover should have been less than $5 billion in the 2020-21 or 2021-22 financial year. They should also have invested more than $100 million in tangible, depreciating assets from 2018-19 to 2020-21. Please note, If temporary full expensing is used on an asset, instant asset write-off can’t be used on that asset. 

Small and medium-sized enterprises (SMEs) with an aggregated annual turnover of less than $50 million are eligible to receive temporary full expensing for second-hand assets. This means that businesses with an aggregated annual turnover of more than $50 million will not receive this benefit.

*Temporary full expensing ended on 30 June 2023.

Instant Asset Write-Off Thresholds 

During COVID-19, the threshold increased from $30,000 to $150,000 per asset acquired. Therefore, businesses with an aggregated turnover of between $50 million and $500 million may be allowed the benefit of deducting the total cost of eligible second-hand assets. 

These assets should cost less than $150,000 and be purchased by 31 December 2021 and installed or used by 30 June 2022. Prior to this, it should have been purchased between 12 May 2015 and 31 December 2020 to be eligible for a deduction. 

This allows eligible businesses to claim a deduction for the portion of the cost of an asset first used or installed ready for use. Your business’s eligibility to apply the correct threshold amount will depend on when the asset was purchased, installed, ready for use, and first used.

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Further Support Announced in the 2023-24 Budget

On 9 May 2023, as part of the 2023–24 Budget, the Australian Government announced further support to improve cash flow and reduce compliance for small businesses. In the budget, the government is temporarily increasing the instant asset write-off threshold to $20,000, from 1 July 2023 until 30 June 2024.

To be eligible for the instant asset write-off, businesses must meet the following criteria:

  • Aggregated annual turnover of less than $10 million
  • $20,000 threshold applies per asset, allowing multiple asset write-offs
  • Assets valued at $20,000 or more can be placed into a simplified depreciation pool
  • Provisions preventing re-entry into the simplified depreciation regime remain suspended until 30 June 2024

Exclusions or Limits For Instant Asset Write-Off 

Five main types of assets which are not eligible for full expensing are:

  1. ‘Expensive cars.’ This generally includes cars costing over $68,108 for the 2023-2024 financial year
  2. Assets located overseas 
  3. Assets not used within a business 
  4. Buildings and other assets are eligible for capital work deductions 
  5. Some primary production assets already have an instant write-off scheme. This can include water facilities and fencing.

Instant Asset Write-Off Example: Car Limit 

The car limit was implemented to prevent businesses from spending too much on luxury cars at a taxpayer’s expense. For tax purposes, motor vehicles that aren’t considered cars do not need to follow the expensive car limit. This means that commercial vehicles such as trucks, vans, and buses bought and used for business operations can be fully written off. 

For example, let’s say a small office supplies business uses the simplified depreciation rule. The company purchased a luxury car designed to carry passengers in August 2020 for $95,000. Since they bought the vehicle before temporary full expensing was made available, the business would qualify to apply for instant asset write-off. 

When they first used the car for business purposes, the instant asset write-off threshold was $150,000. The car limit at that time – in the 2020/21 income tax year – was $59,136. For this reason, the business could only claim $59,136 for the year ending 30 June 2021. No other depreciation rules can help them claim the excess cost of the vehicle. 

Alternatively, larger utes can be referred to as commercial vehicles rather than cars. If the ute can carry a load over one tonne, it will not be regarded as a car. So the expensive car limit will not apply.

What Timing Applies For Instant Tax Write-Offs? 

The instant tax write-off applies to assets attained during the current financial year through to 30 June 2024. Any purchased assets should be in use or installed and ready for use by 30 June 2024 to qualify.

If you have ordered and paid for assets that haven’t yet arrived at your premises, you cannot claim instant deductions on them. The same applies to assets that have come to your workplace but are still sitting in boxes.

How to Claim Instant Tax Write-Offs 

Claims are made through your tax return. For a successful claim, make sure to keep your purchase documentation so that you can prove your purchase. It is advised that you consult with a qualified tax practitioner to ensure your tax return is correct.

What Records Do You Need To Keep? 

You must keep a record of all purchases you’ve made. It should include information such as when the purchase was made and the value you paid. 

As mentioned earlier, it’s essential to check your business’s eligibility and ensure that you apply for the suitable threshold amount. This should depend on when you purchased the asset and when it was first used or installed, ready for use. 

To ensure that your business can claim the cost of any asset, you must follow the depreciation rules. Your asset should be purchased within the period the government has allowed – 6 October 2020 to June 2023. You can access more instant asset write-off information on the ATO website.

Essentially, two important rules are that you must be in a business to claim it, and your asset needs to be ready for use. You can’t buy the asset and plan to use it in a couple of years.

How QuickBooks can help

QuickBooks can help to get your accounting and documentation in order. QuickBooks offers a variety of efficient software to help get your finances together. This includes an expense tracker to keep track of the assets you purchase.

While every care has been taken to ensure the accuracy of the information presented as at 12 April 2024, Intuit is not providing you with professional advice and we recommend you obtain your own professional advice. Intuit is not liable for your use of the information presented.

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