Making the most of the instant asset write-off before the EOFY deadline

Two months and counting (down). That’s how long your business has to make use of the $150,000 instant asset write off before the end-of-financial-year June 30 deadline.

Early last month, just as coronavirus was ramping up in Australia, the federal government increased the instant asset write-off threshold from $30,000 to a whopping $150,000 as part of its economic stimulus package.

Under the scheme, businesses can immediately write off the cost of assets such as vehicles, tools, equipment and – thanks to the recent threshold increase – heavy vehicles, tractors and machinery.

Better yet, the threshold applies on a per asset basis, so eligible businesses can immediately write off multiple assets.

Is your business eligible?

Not only was the threshold increased, but the scheme can now be accessed by businesses with an annual turnover of up to $500 million (up from $50 million).

Assets that could be immediately written off include a concrete tank for a builder, a tractor for a farming business, or a truck for a delivery business.

But it’s not enough to simply purchase the asset to be eligible. The new or second-hand asset must also be first used, or be installed and ready for use, this financial year.

Now, it’s important to keep in mind that “write-off” doesn’t mean “free asset”.

Basically, this initiative allows you to immediately claim all the tax deductions you would have claimed over the life of the asset.

This can help with your business’s cash flow, as getting the cash back sooner means you can re-inject it straight back into other parts of your business.

Bruce’s tractor: a case study

Say ‘gday’ to Bruce, who runs Fair Dinkum Farms in the Darling Downs and has an aggregated annual turnover of $25 million for the 2019‑20 income year.

In May, Bruce finally splashes out and purchases the second-hand tractor he’s had his eye on for a while now for $140,000, exclusive of GST, for use in his business.

Under the new $150,000 instant asset write‑off, Fair Dinkum Farms can claim an immediate deduction of $140,000 for the purchase of the tractor in the 2019‑20 income year.

This is $136,101 more than he could have immediately claimed under normal arrangements, as Bruce would have only been able to claim $3,899 using the diminishing value method over a 12 year period.

At the company tax rate of 27.5%, old mate Bruce will pay $37,427.78 less tax in 2019‑20 than he would have if the instant asset write-off scheme wasn’t in place.

This will improve Fair Dinkum Farms’ cash flow and help Bruce’s business withstand the economic impact of the coronavirus.

Limits relating to cars

Now, there’s a limit relating to cars that we should note.

If you purchase a car for your business, the instant asset write-off is limited to $57,581 (the business portion of the car limit) for the 2019-20 income tax year.

You cannot claim the excess cost of the car under any other depreciation rules.

Also, say the vehicle will be used 80% of the time for business purposes and 20% for personal usage, you can only claim deductions for 80% of the asset.

Getting finance that’s right for your business

When purchasing an asset under this scheme, it’s crucial to select the correct finance product.

And that’s where we can help out. We can present you with financing options for the instant asset write-off scheme that are well suited to your business’s needs now, and into the future.

So if you’d like help obtaining finance that’s gentle on your cash flow, and helps you achieve your long-term goals, please get in touch this month well ahead of the deadline – we’d love to help out.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.