Massive increase to the instant asset write-off threshold

Major changes have been announced to the instant asset write-off threshold.

Most businesses will be able to write-off assets purchased up to the value of $150,000 as tax deductions. The increased deduction can be claimed for the 2019/2020 financial year.

Previously, only assets bought up to the value of $30,000 could be claimed. Prime Minister Scott Morrison announced this increase on March 12. It is part of the government’s economic stimulus package. This package aims to limit the economic impact of the coronavirus.

Can you claim multiple assets?

It’s important to understand that there is no limit the number of assets that can be claimed. For trucks and equipment, as long as an asset is bought for under $150,000 it can be claimed. Cars are limited to a cost limit of $57,581.

For example, suppose a business buys 5 company cars for $40,000 each. All 5 cars can be immediately ‘expensed’ as tax deductions, instead of carrying them on the balance sheet and expensing depreciation over a number of years. None of these assets would have been eligible tax deductions before the threshold increase.

Business vehicles are a common asset to write-off under this scheme (up to the $57.5K limit). Customers are also financing trucks and equipment such as excavators and bobcats.

How much tax will I save by using the instant asset write-off?

That depends on your business structure. The four most common types of business structures in Australia are:
1) sole trader,
2) partnership,
3) trust,
4) company.

If your business has a sole trader, partnership or trust structure, you will pay tax at your marginal rate. Your tax saving will depend on your income level. For example, if you earn between $37,000 and $90,000, your marginal tax rate will be 32.5%. Your instant asset write-off will therefore save you 32.5% in tax.

The company tax rate in Australia is 27.5% for those businesses with an annual turnover less than $50 million. It’s 30% for companies with annual turnovers above $50 million. So if your company uses the instant asset write-off, your tax deduction will save you 27.5% or 30%. The amount will depend on your size.

Are there any other changes instant asset write-off changes I should know about?

Yes. More businesses will now be able to claim instant asset write-offs. Any business with an annual turnover less than $500 million can now claim. Previously, only businesses with an annual turnover less than $50 million could claim.

According to the government, over 99% of Australian businesses will now be eligible. That’s 3.5 million businesses.

Will the instant asset write-off threshold be lowered in the future?

Yes. At this stage, the threshold is due to be lowered to $1,000 for small businesses after June 30. Small businesses are defined as those with an annual turnover less than $10 million.

The bottom line

In spite of all the noise over the coronavirus, a lot of businesses are currently making finance enquiries to take advantage of the scheme.

If you don’t take advantage of the instant asset write-off scheme, you’ll pay more tax on your business income. If you’re a small business, you’ll also miss out on the chance of the government subsidising your asset purchase. The increase to the instant asset threshold is only available until June 30 this year.

How we can help

If you’re looking to buy a business vehicle, talk to us. We’re finance brokers. We can make sure you get the best finance deal.

Don’t use dealer-arranged finance or try to arrange it yourself. If you do, you’ll end up paying a lot more. We arrange car finance for a living. We work for our clients, not for lenders.

Call 1300 301 051 during business hours to speak with one of our experienced brokers.

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