$30,000 Instant Tax Write Off
If you are thinking of purchasing assets for your business or looking to reduce your taxable income this financial year, you will benefit from knowing all about the $30,000 Instant Tax Write Off. The Australian Govt has increased the threshold of the Instant Tax Write Off scheme to up to $30,000. Eligibility has also been expanded to include medium-sized businesses with a turnover of less than $50 million.
These latest amendments by the Federal Govt mean there are now three tiers for the 2019 income year:
- Tier 1: $20,000 threshold for depreciable assets acquired before 29 January 2019
- Tier 2: $25,000 threshold for assets acquired between 29 January 2019 and 2 April 2019
- Tier 3: $30,000 threshold for assets acquired between 2 April and before 1 July 2020
For the first time, the Instant Asset Write Off at the Tier 3 threshold will also be available to Medium Business entities with a turnover of between $10m and $50m. Tier 1 and 2 apply to businesses with a turnover of less than $10 Million.
If businesses are registered for GST, then the overall cost of the asset increases to $32,999 as the business can claim $2,999 as an input tax credit.
These rules apply to each asset costing less than $30,000. Therefore, multiple assets could be purchased with each one entitled to a full tax deduction.
What assets are included?
Assets that are directly related to your business’s income-producing activities and that cost less than $30,000 (if acquired between 2 April 2019 and 1July 2020). Examples include computers, printers, vehicles, solar panels, phones, equipment, machinery, websites, tools of the trade and office furniture are just some of the many examples. Certain structures on agricultural property that would normally be classified as capital works.
What assets are excluded?
Personal assets and assets that cost more than $30,000 are all excluded. Leased out or expected to be leased out for more than 50% of the time on a depreciating asset lease have also been excluded. Any assets already allocated to a low-value pool. Horticultural plants – such as fruit trees are excluded. Capital works including buildings and structural improvements, these items are written off over a longer period.
Andrew owns a plumbing business with an annual turnover of $2 Million. On 15 May 2019, Andrew purchases and starts to use two new utes for his business each valued at $29,000 plus GST. The following month Andrew purchases and starts to use a trailer to support his business which costs him $10,000. Andrew has spent a total of $68,000. As the $30,000 instant asset write off threshold applies to each asset, Andrew is able to claim both utes and the trailer in his 2019 tax return.
Nicole owns a graphic design and signage business. She has an annual turnover of $500,000. On 10 April 2019, she buys two new powerful computers for $8,000 each. One computer is used solely for work, the other computer is used 80% of the time for business purposes and 20% of the time for personal purposes. She also bought a new printer for $5,000. The printer is used 100% of the time for business purposes.
For the computer, Nicole calculates her instant asset write off as 80% (the business use proportion) of $8,000, so she claims $6,400 plus $8,000 for the second computer, totally $20,800. The full $5,000 for the printer is claimable. All up $25,800 is claimable in the 2019 tax year.
Brad owns a manufacturing business, with an annual turnover of $25 million. On 29 March 2019, he enters into a contract to purchase a solar system for his business at a cost of $24,000 plus GST. On the 10 April 2019 Brad decides to purchase additional solar panels for his business worth an additional $29,000 plus GST.
The solar system is fully claimable as are the additional solar panels. In total Brad can claim $53,000.
Rachel owns 5 coffee outlets. She has an annual turnover of $5 million. On 10 March 2019, she buys two new commercial fridges for $20,000 each and a new company vehicle for $29,000. On the 1 April 2019, she purchases a new point of sale system for all 5 stores costing $28,000 plus GST.
The two fridges are both claimable at $20,000 each. The full cost of the point of sale system is claimable as each unit cost $5,600. The vehicle, however, is not claimable as it was purchased prior to the Tier 3 coming into effect.
Kristy owns an online business. She has an annual turnover of $180,000. On 15 October 2019, she buys a new computer for $3,000 which is used 90% of the time for business purposes and 10% of the time for personal purposes. She also bought a new phone for $1,500 which is used 60% of the time for business purposes and 40% of the time for personal use. On the 5 April 2019 she purchased new camera equipment for $15,000. The camera is used 100% of the time for business purposes.
Kirsty calculates her instant asset write off as 90% (the business use proportion) of $3,000 or $2,700, plus $900 which is 60% for the cost of the phone. She can also claim the full $15,000 for the camera equipment is claimable. Her total claim is $18,600 for the 2019 financial year.
The Instant Asset Write Off is a deduction
The instant asset write off is a tax deduction that reduces the amount of tax your business needs to pay. If your business is likely to make a tax loss, then the bigger deduction may not provide any short-term benefit.
The Instant Asset Write Off and GST
The cost of an asset includes both the amount you paid for it as well as any additional amounts you spent on transport and installation so the asset is ready for use.
If you are registered for the goods and services tax (GST) and can claim the full GST credit. Exclude the GST amount you paid on the asset when you calculate your depreciation amounts. Hence, your instant asset write off threshold is $29,999 exclusive of any GST.
If you are not registered for GST, you include the GST amount you paid on the asset in your depreciation calculations. Hence, your instant asset write off threshold is $29,999 inclusive of any GST.
If you are only able to claim a portion of the GST credit then the cost is reduced by the portion you can claim.
In order to take advantage of the new $30,000 threshold, you will need to acquire your asset between 2 April 2019 and 30 June 2020. Therefore, keep in mind that the wording of any contract you sign is important. Ensure that any contracts for assets which are subject to lead times, delivery or installation make your business the owner of the asset before 1 July 2020.
Need further advice?
The Instant Asset Write Off can be a useful tax planning tool for businesses. If you have been planning an asset purchase and have the cash flow available, now might be a good time for you to take advantage of this opportunity.
If you are considering purchasing business assets, make sure you have a chat with your accountant first. Not only can we advise if this is the right time to use the Asset Write Off scheme we can also make sure your business, the asset(s) and purchase date are eligible.
Feel free to contact us for further advice or a free no obligation initial consultation. You can reach us on (07) 5492 0300 or via email firstname.lastname@example.org
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