Understanding the Small Business Instant $20K Write-Off


The $20,000 instant asset write-off for small businesses has been extended by yet another year and many SMEs are now wondering how they can fully leverage this tax break and make some tax savings in the process.

How the asset write-off works

According to the $20,000 asset write-off scheme, if you purchase an asset that costs less than $20,000, you are allowed to deduct the business option of the expense in your tax returns. For example, if you purchase an $18,000 vehicle and use it in your business 33% of the time, you can claim $6000, which will be deducted from your taxable income.

You can use simplified depreciation rules and claim deductions on the business portion of the asset value, whether it is new or second hand. The rule is that it must cost less than $20,000.

Businesses are only eligible to claim the asset write-off if:-

  • They have a turnover of less than $10 million.
  • The asset you are claiming was either first used or was installed and ready for use in the year in which you are claiming the deduction.

If the asset costs $20,000 or more, it cannot be deducted immediately. Instead, it will be deducted over a period of time based on the general small business pool. SMEs are only allowed to write-off the balance under this pool if it is less than $20,000 at the end of an income year before any depreciation deduction is applied. Spending $20,000 on your business assets will also help decrease your taxable income while helping boost the operational efficiency of your business.

What assets are eligible for a write-off?

The asset write-off can be claimed on the following assets:-

  • Work vehicles
  • Air conditioners
  • Signage
  • IT hardware
  • Office furniture and fittings
  • Kitchen equipment
  • Operational Equipment
  • Tradie tools and machinery
  • Equipment storage such as storage containers and sheds

Clearing the confusion around asset write-off

Still, many small businesses are often confused about what this write-off covers. The ATO instant asset write-off gives you the opportunity to immediately write-off the cost of an asset in the year in which you purchased it.

The cost is what you have paid for the asset and includes any additional amount that you have incurred in transporting, installing and improving the asset in that particular year. If you are not registered for the GST, the cost will also factor in the GST paid when purchasing the asset.

If you are purchasing a motor vehicle asset, the asset cost factored in the write-off will not include the amounts incurred in the registration, CTP and the cost of the extended warranty.

If your business is eligible, you can claim a deduction on an unlimited number of purchases made by the business. The asset write-off works on a “per asset basis” and not on a cumulative basis so there is no limitation on the frequency with which a business can apply for an asset write-off in a particular year. For example, you can purchase three assets worth $19,000 each and claim an asset write-off on each of the assets.

Keep in mind….

The asset write-off must be claimed in the same year that the asset was purchased or installed for use in your business. If you are planning to file claims this year, make sure that you buy the assets and file your claims by June 30. In case you are short of finances and will need some help with financing, you need to allow yourself time to apply for a loan and purchase the asset in time. Always start early to make the most of these tax incentives.

Also, before embarking on a new asset acquisition, create time to talk to your accountant to determine if the purchase will not be hurting your cash flow and that the tax incentive will be right for your business. If you are facing cash flow restrictions, a short term loan can ease up the cash flow issues and help you make the most of the instant asset write-off.

Need help with claiming your instant asset write-off this year? A professional accountant Melbourne or BAS agent can advise on asset purchases, assist you with filing returns and ensure you are not leaving any money on the table.

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