The new $20,000 instant asset write-off means that assets valued less than $20,000 can be claimed as an immediate tax deduction. As part of the federal budget, the Australian Government announced that small businesses with an aggregated turnover under $2 million would be entitled to claim a $20,000 instant asset write-off. Small businesses can use this feature to write-off for any depreciable plant and equipment asset or fit-out installed in a business. Examples of deductible items, which can be claimed range from office furniture, blinds, workstations and light fittings to more specific industry assets such as hospitality, medical or manufacturing equipment.
Assets that cost over $20,000 can’t be immediately deducted. They will continue to be deducted over a period of time using the general small business pool. You write off the balance of this pool if the balance is less than $20,000 at the end of an income year. The $20,000 threshold applied from 12 May 2015 and will reduce to $1,000 from 1 July 2018. In the latest Federal Budget, there is a proposal to extend the $20,000 instant asset write-off threshold to 30 June 2019. This change is not law yet.
Using the simplified depreciation rules, assets costing less than the instant asset write-off threshold are written off in the year they are bought and used only, or installed ready-for-use. This applies irrespective of whether the asset is purchased new or second-hand. The current threshold is $20,000. It has changed over the last few years as shown in the table.
|7.30pm (AEST) 12/05/2015 to 30/6/2018||$20,000|
|01/01/2014 to prior to 7.30pm (AEST) 12/05/2015||$1,000|
|01/07/2012 to 31/12/2013||$6,500|
|01/07/2011 to 30/06/2012||$1,000|
Let’s understand with the help of examples
Example 1 – Demonstrating (Exceeding of the threshold)
Harry owns an electrical business, Harry’s Electrical that qualifies as a small business. The business purchases a ute for $40,000 on 28 July 2016. Harry estimates the ute will be used 40% of the time for his business. Even though the value of the ute to the business is $16,000 ($40,000 × 40%), Harry can’t immediately write it off. Instead, he adds the $16,000 for the ute to Harry’s Electrical small business pool.
Example 2 – Immediate write-off
On 18 May 2016, David buys a new powerful computer for $6,800 that he uses 80% of the time for business purposes and 20% of the time for personal purposes. He also bought a new printer for $700 which he uses for 100% of the time for business purposes. For the computer, David calculates her instant asset write-off as 80% (the business use proportion) of $6,800, so he claims $5,440. For the printer, he claims the entire cost of $700. David includes the combined amount of $6,140 at label A of the Business and professional items schedule which is filled out when completing her tax return.
If you find this information difficult to understand then remember, registered tax experts can help you with your tax.