Ever since the $20,000 instant asset write-off was included by the Australian Taxation Office (ATO) in the Australian federal budget on 2015, it had given small businesses a lot of benefits—such as purchasing business-related equipment that can be costly without the asset write-off.
However, a significant number of small businesses still fail to take advantage of this write-off, often due to the lack of ample funding and confusion on how the write-off scheme works.
How exactly does the $20,000 instant asset write-off work?
The $20,000 instant asset write-off is technically a win-win for small businesses—it allows business owners to purchase business-related equipment and write them off their assessable income as a tax deduction. Instead of claiming a smaller amount of annual depreciation, business asset purchases can be instantly written off.
With the write-off, small businesses can spend as much as $20,000 on assets without worrying about tax payables going higher. The write-off can be used to purchase equipment such as hardware, furniture, business vehicles, air conditioning systems and other leasehold improvements for small businesses.
Is my business eligible to claim the instant asset write-off?
A business is eligible for an asset write-off if the business has a yearly turnover of less than $10 million. In addition, asset write-offs can only be claimed for business assets worth less than $20,000.
If a business decides to purchase a business vehicle worth $18,000 and the business uses it 50 per cent of the time for work-related purposes, the business can only claim a $9,000 asset write-off that will be deducted from the business’ taxable income.
Small businesses can also claim the asset write-off regardless of goods and services tax (GST) registration. If a business is GST-registered, the terms will be up to $20,000 minus GST. If a business is not registered for GST, businesses can only claim up to $20,000 inclusive of GST.
How can I use the asset write-off without affecting my business’ cash flow?
The “instant” in instant asset write-offs isn’t really that immediate—tax deduction benefits wouldn’t be felt by the business right away. Between the asset purchase and write-off taking effect, businesses could possibly experience a tightening of finances if the waiting period takes a few years or so.
This is where unsecured business loans can help. Taking out a small business loan helps businesses maintain a decent cash flow while waiting for the write-offs’ benefits to take effect. Conversely, a business loan also helps businesses without sufficient capital to take advantage of the instant asset write-off by allowing them to make asset purchases.
Can I claim multiple assets?
Instant asset write-offs can be used for multiple assets provided that each asset is priced at $20,000 or lower. While there is a $20,000 limit on asset purchases, there is no given limit on how many times a small business can utilise the write-off.
However, certain provisions must be met before an asset can be considered eligible for the write-off. First, assets must be purchased and installed (if applicable) before the deadline set by the ATO. To avoid possible complications, businesses must be prudent enough to purchase assets and install them at least weeks before the said deadline.
What other things should I know about the instant asset write-off?
The $20,000 instant asset write-off must be claimed within the same year of asset purchase/s. There are also exclusions that businesses should watch out—there are various kinds of assets that are considered ineligible for the write-off based on a list of exclusions found on the ATO website.
Lastly, business owners are advised to seek assistance from a tax professional that can properly evaluate whether or not the business can benefit from the asset write-off. When making major decisions, seek the opinion of a professional who is well-versed in income tax and general taxation.