How does the $30,000 Instant Asset Write-off work?

The 2019-2020 Australian Federal Budget included an increase in the ‘Instant Asset Write-off’ for assets costing less than $30,000 (ie $29,999).

This allows businesses that meet the relevant turnover criteria to claim an income tax deduction in full for the cost of purchasing an asset that costs less than $30,000.

The new rules (which are already law, having passed through Parliament), now apply to all businesses with an aggregated turnover of less than $50 Million (previously they only applied to a ‘small business’ (turnover < $10 Million)) and will apply for assets purchased between 7:30 pm on 2 April 2019 and 30 June 2020.

If businesses are registered for GST, then the overall cost of the asset increases to $32,999 as the business can claim $2,999 as an input tax credit.

These rules apply to each asset costing less than $30,000.  Therefore, multiple assets could be purchased with each one entitled to a full tax deduction.

Example: ABC Building Co Pty Ltd, a company with turnover of $20 Million, acquires 3 new utility vehicles, each costing $28,000 + GST) on 10 April 2019.  ABC Building Co would be entitled to a tax deduction of $84,000.

If a business only uses the asset partly for business, then only the business portion of the cost of the asset can be claimed as a tax deduction.

When acquiring these assets, care needs to be taken with the type of finance chosen.  Assets that are leased will not be entitled to a deduction for the cost of the asset when entering into the lease arrangement.  Under a lease arrangement, the business entity does not own the asset, but just rents it until after the final lease payment has been made.   Therefore, consider other types of finance that result in ownership up-front.

The rules do vary slightly between small and medium businesses.

Medium Business (turnover between $10 Million and $50 Million)

Medium companies must acquire an asset costing less than $30,000 after 2 April 2019 and before 1 July 2020 and have it installed ready for use before 1 July 2020.

Small Business (< $10 Million turnover)

The instant asset write-off rules have always applied to small businesses, but the asset cost threshold has changed over time.

In order to claim a tax deduction, the asset must be purchased after 12 May 2015 (2015 Budget), owned and used, or installed, ready for use (not just a purchase order placed). 

The date of first use, or installed ready for use determines the asset cost threshold available for immediate write-off. 

Asset first used or installed ready for use between:

Small business (turnover less than $10m)

Medium business (turnover less than $50m)

1 July 2018 to 28 January 2019

< $20,000

n/a

29 January 2019 to Budget announcement at 7:30pm - 2 April 2019

< $25,000

n/a

Budget night to 30 June 2020

< $30,000

< $30,000

The date that the asset is first installed ready for use is critical.

For small business, the < $30,000 threshold will apply even if the asset was purchased and paid for on say 31 March 2019 (before Budget night), but not delivered and installed until say 5 April 2019 (after Budget night), then the taxpayer can obtain a full tax deduction for the cost of the asset as it was installed after Budget night.

Should you have any questions, please do not hesitate to contact your usual Mazars advisor or alternatively our tax specialists:

Brisbane – Jamie Towers

Sydney – Gaibrielle Cleary

Melbourne – David Kent / Evan Beissel

+61 7 3218 3900

+61 2 9922 1166

+61 3 9252 0800

 

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.

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