The Instant Asset Write-Off

The instant asset write-off scheme can help you to reduce your business tax bill. It now allows you to claim immediate tax deductions on the cost of business assets under $30,000. Common examples are vehicles, office equipment and tools.

The instant write-off scheme was first introduced in 2015.  Only businesses with a turnover less than $10 million were eligible. Before then, the cost of all business assets usually had to be depreciated over several years.

Eligibility for the scheme was extended in the 2019 Federal Budget. Businesses with an annual turnover up to $50 million are now eligible. The asset threshold amount has also increased from $20,000 to $30,000 since the introduction of the scheme. It is currently scheduled to be in place up until 30 June 2020.

The current $30,000 instant asset write-off threshold applies to each asset you buy. It doesn’t apply to the combined total. For example, imagine that you buy an asset worth $15,000 and another worth $20,000. You can write-off the full cost of both, even though their combined value is $35,000.

But each asset must be used or installed in the year it’s bought to be eligible to be written off under the scheme.

How can the instant asset write-off benefit my business?

The instant asset write-off scheme makes it cheaper for you to buy assets. The tax office is effectively subsidising your asset cost by the amount you save in tax. This is best illustrated with some examples.

Example 1 – sole traders/partnerships

Imagine that you have a sole trader or partnership structure for your business. If you do, you’ll be paying tax on your business income at your marginal rate. Suppose that your income is going to be $80,000. Your tax bill would be $17,547.

Now imagine that you bought a business vehicle for $30,000 during the year. If you did, your taxable income would drop to $50,000 using the instant asset write-off. You tax bill then would only be $7,797. That’s a tax saving of $9,750 that you can put towards the cost of your new vehicle.

It’s important to separate any private use of a business vehicle. You can only write-off the proportion of business use. For example, if the vehicle is only used 80% of the time for business purposes, you’ll only be able to write-off 80% of its cost.

Example 2 – companies

If your small business has a company structure, your tax rate is 27.5%.  Imagine that your income was going to be $100,000. Your tax bill would be $27,500.

Now imagine that you bought new equipment to the value of $30,000 during the financial year. If you did that, your business income would drop to $70,000. Your tax bill would drop to $19,250. That’s a tax saving of $8,250 that you can put towards the cost of your new equipment instead of paying it to the tax office.

Important considerations

It’s important to understand the cash flow of your business before you buy any assets. You need to ensure that you won’t be tying up your cash unnecessarily just to get a tax deduction. It’s worthwhile to seek professional financial advice.

It’s also important that the assets you buy are put to good use. For example, to help you grow your business.

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