On 14 May 2024, as part of the 2024–25 Budget, the government announced it will continue it’s aim to improve cash flow and reduce compliance costs for small businesses by extending the $20,000 instant asset write-off by a further 12 months until 30 June 2025. This measure was previously announced as part of the 2023–24 Budget in relation to the 2023–24 income year.
Here’s a short summary of what this means:
Small businesses, (with aggregated turnover of less than $10 million), will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2025.
The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year after that.
What is an “eligible asset”?
An eligible asset in terms of the small business instant asset write-off includes most depreciating assets that have a limited life expectancy and can reasonably be expected to decline in value over time. Examples include tools and equipment, computers, laptops, tablets, office furniture, office equipment, and motor vehicles. The asset must be used or installed ready for use for a taxable purpose*, and its cost must be less than the relevant threshold ($20K). Some assets, such as leased assets, horticultural plants, software allocated to a software development pool, and assets used in R&D activities, are excluded.
Taxable Purpose
A taxable purpose refers to using an asset in a way that generates assessable income. This includes using the asset in your business operations or other activities that produce income subject to tax. For example, if you purchase a computer for your business, using it to manage business finances or communicate with clients would be considered a taxable purpose.
If the asset is used for both personal and business purposes. You must only claim the portion of the expenses that relates to the business use of the asset. Proper records should be kept to accurately determine and justify the business-related portion.
Small business simplified depreciation pool
The small business simplified depreciation pool allows small businesses to group most depreciating assets and claim a single depreciation deduction. Under this system, assets costing $20,000 or more are added to the pool and depreciated at a rate of 15% in the first year and 30% in subsequent years. If the pool balance falls below the instant asset write-off threshold at the end of the income year, the entire balance can be written off. This pooling method simplifies the calculation of depreciation deductions.
How will the Instant Asset Write Off benefit you as a business owner?
The instant asset write-off benefits small business owners by allowing them to immediately deduct the cost of eligible assets up to $20,000 in the year the asset is first used or installed ready for use. This immediate deduction improves cash flow by reducing taxable income, thereby lowering the tax payable for that year. For example, if a small business owner purchases a new delivery van for $18,000 or a set of office computers for $15,000, they can claim the full cost as an immediate deduction. This simplifies accounting and tax reporting, as businesses do not need to depreciate the asset over several years.
The Instant Asset Write-Off WON’T provide a benefit to you under the following scenarios:
Asset Cost Exceeds Threshold: If the cost of the asset exceeds the relevant threshold, the asset cannot be immediately written off and must be added to the small business pool for depreciation.
Ineligible Assets: If the asset is excluded from the simplified depreciation rules, such as leased assets, horticultural plants, software allocated to a software development pool, and assets used in R&D activities.
Non-Business Use: If the asset is not used for a taxable purpose or is primarily used for personal purposes, the write-off cannot be claimed.
Aggregated Turnover: If the business’s aggregated turnover is $500 million or more, it is not eligible for the instant asset write-off.
Will the Instant Asset Write-off provide a benefit EVEN if my business is in a loss position?
If your business is in a loss position, the instant asset write-off may still be of benefit, but its immediate impact is limited. The deduction can increase your business loss for the year, which can be carried forward to offset future taxable income, potentially reducing tax payable in profitable years. However, it won’t provide an immediate tax refund or cash flow benefit in the year the loss is incurred.
Act FAST!
With the end of the financial year approaching on June 30, it’s URGENT for businesses to act now to take advantage of tax benefits in the current financial year. Ensure any eligible assets are purchased and installed ready for use by June 30 to qualify for the instant asset write-off.
While it’s important to act before June 30 to take advantage of tax benefits, it’s equally crucial to ensure that any asset purchase is genuinely needed for your business. Don’t make a purchase solely for the sake of claiming a tax deduction. Unnecessary spending can strain your cash flow and may not provide long-term value. Always consider the business necessity and potential return on investment before making any financial decisions.
For more information, don’t hesitate to get in touch with our team.
