In 2020 the Federal Government announced that most businesses earning up to $5billion can now write off eligible assets, at any cost, until June 2022 with the instant asset write-off deduction.
The measure applies to eligible assets purchased from 6 October 2020 and first used or installed by 30 June 2022. The cost of improvements to existing eligible depreciable assets made during this period can also be deducted in full.
The instant asset write-off is referred to as ‘temporary full expensing’, which means eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use.
The Government estimates 3.5 million Australian businesses will be eligible in a move set to encourage spending among businesses.
This is the second expansion of the limit in just 2020 alone. In March, the Government had already increased the eligible amount for each asset up to $150,000 from $30,000. Now, the Government says there is no limit on asset prices.
Eligible assets include computers, tablets, wireless network equipment (including routers, access points, antennas, and repeaters), sensors, trackers or anything else that is used in the running of a business.
Businesses need to follow certain rules to make sure they can claim the cost of any asset.
The asset needs to be purchased and installed within the time period the Government specifies –from 6 October 2020 up to June 2022. It needs to be ready for use – you can’t just have it lying around and then plan to install it a couple of years from now.
The increase is another reason why it’s so important for businesses to have their expense tracking and documentation under control.
Here are some tips from MYOB on how to make sure you claim an asset correctly. Keep in mind, these details may change as this is based on past eligibility criteria:
- You have to be in business to claim the Instant Asset Write-Off – having an ABN is not enough. Meaning that any size business (sole trader, partnership, company or trust) that has an aggregated turnover of less than $5billion at the beginning of the current income year is eligible.
- This tax break is not a cash hand-out, but a deduction that reduces your taxable profit. If you operate as a company and spend, say, $40,000 on a capital purchase (net of GST), then assuming a tax rate of 27.5 per cent, the company will receive a 27.5 per cent deduction, which equates to an $11,000 reduction in tax. This means that the company will still have a net cash outlay of $29,000 on this purchase.
- The asset must be used or installed ready for use by 30 June 2022. This is particularly important if the business purchases the asset just before the end of the financial year. For example, if the asset is purchased, say, on 29 June 2022, but not available for use in the business until 7 July 2022, then the business loses the entitlement to claim an immediate tax deduction for the asset.
- Pro-rate the deduction for private use – to claim the full deduction, the asset has to be used solely for business purposes. If you operate as a sole trader or in a partnership and there has been some personal use of the asset, the deduction needs to be pro-rated to reflect this.
- The deduction is not pro-rated where you operate as a company or a family trust, but fringe benefits tax (FBT) may apply to the private use of the asset by employees (FBT on company cars is a common example).
If your business is in need of a cellular or wi-fi connectivity solution make the most of the instant asset write off in 2021. Visit the ATO to find out more about eligibility or contact our Customer Relationship Team to discuss how we can assist with your business needs. 1300 769 378 or [email protected]
* It is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a financial nature you should seek advice from a qualified and registered accountant, legal practitioner or financial or investment adviser.