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The $20,000 tax write-off: a basic guide

The $20,000 tax write-off: a basic guide

The 2017 Federal Budget had included a $20,000 instant write-off for small business owners, but there remains some confusion about exactly what it entails and who is eligible to claim it.

A small business can be eligible for a $20,000 tax write-off if there is an asset bought before 1 July 2017 costs less than $20,000. This amount can be deducted immediately from the 2017 tax return using simplified depreciation rules. The $20,000 write-off threshold’s applicability has been extended until 30 June 2018.

Eligibility

Small businesses can only claim the instant deduction for the business portion of each asset, whether it be new or second-hand, costing less than AU$20,000, if:

  • There is a turnover less than $10 million (previously $2 million)
  • The asset was first used or installed ready-for-use in the 2016-2017 income year.

Assets costing $20,000 or more can’t be immediately deducted. They can, however, be deducted over time using a small business asset pool.  by deducting the balance of the pool if the balance is less than $20,000 by the end of the income year—before applying any other depreciation deduction.

How it works

The cash handout of $20,000 is not a form of investment allowance but a deduction of assets costing less than $20,000. This deduction can reduce the tax payable if there is  a tax liability for the current income year.

Goods and services tax (GST) exclusive value

Legislation dictates that the value of  the asset to be deducted should be the GST exclusive value. This means that a small business taxpayer will be entitled to claim an input tax credit on the purchase for GST purposes.

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Claiming a deduction

The asset purchased must be used by the business during the income year in order for the business owner to be eligible for the write-off.

This does not include the placement of an order at year-end for an asset in which possession will be taken in the following income year.

Eligible assets

All assets are eligible for the tax write-off. 

These assets are listed as specific exclusions on eligible assets that can be deducted and will receive a different depreciation treatment:

  • Horticultural plants
  • Capital works
  • Assets located to low-value or software depreciation pools
  • Primary production assets
  • Assets that are leased out to another party on a depreciating asset lease

Treatment of depreciation can be subject to the uniform capital allowance (UCA) rules, the “capital works” depreciation rules, and the accelerated depreciation rules.

Keep in mind that there should be a very good commercial reason behind any asset purchase. Never buy a qualifying asset to simply access the tax deduction. If done, it defeats the purpose of the tax deduction which is to help small businesses not only survive but thrive.

The $20,000 tax write-off: a basic guide
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