Small businesses can immediately deduct assets costing less than $20,000 purchased since 7.30pm 12 May 2015. The deduction is claimed in the income year in which the asset is first used or installed ready for use.
What’s changed?
The instant asset write-off threshold has increased to $20,000 (up from $1,000).
The changes apply
- to assets acquired after 7.30pm on 12 May 2015 until 30 June 2017,
- on a per asset basis, so several assets each costing less than $20,000 would qualify,
- to new and second hand assets.
Assets that cost $20,000 or more (which can’t be immediately deducted) will continue to be deducted over time using a small business pool.
The low pool value threshold will also increase to $20,000. This means that an immediate deduction is available if the pool balance is less than $20,000 at the end of an income year.
Is your business eligible?
To use the instant asset write-off, your business needs to be eligible. The first test is that you have to be a business – not just holding assets for investment purposes.
The second is the aggregated turnover of your business needs to be below $2m.
Tips
- Never take on a debt just to chase a tax deduction – only use it for legitimate purchases that will help your business grow. Cash flow is still the King!
- If your business is expected to make a profit next year or the year after, then you may be better off waiting to use the deduction in those tax years
- Identical items individually costing less than $20,000 are ok, there are no grouping provisions.
- If you improve a current asset or relocate it and spend less than $20,000 you can immediately write it off.
Traps
- Passive property investors are not considered to be running a small business.
- Going out and getting an ABN and buying plant and equipment thinking they will be able to offset it against their wages income will not work. What we have in legislation is division 35, the non commercial loss rules that prevent you from claiming business losses against your wages income. At the very least you have to be able to show that your business had run the full year and it would have had income of more than $20,000, before you can use the deduction.
- The concession applies to both new and second hand plant and equipment. The $20,000 threshold includes the GST if you are not entitled to claim GST input credits. If you are registered for GST and entitled to claim input credits then the $20,000 threshold does not include GST.
- If there is private use of the asset you are only entitled to write off the business portion. Nevertheless the $20,000 threshold applies to the whole price of the asset, not just the business portion.
There are a number of assets that don’t qualify for the instant asset write off as they have their own set of rules. These include horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease.
