It's your last chance to take advantage of the Instant Tax Write-Off program — but should you? The popular tax break allows SMEs to reduce their taxable income by writing off assets instantly.
As of 30 June 2023, the program will end. In this article, we explain the in’s and out’s of the Instant Asset Write-Off and consider whether it's the right option for your small business this financial year. Hint: the answer may surprise you!
What is the Instant Asset Write-Off?
The instant asset write-off is a tax deduction scheme that allows small businesses to immediately deduct the cost of eligible assets they purchase for their business. This is instead of depreciating them over time.
Businesses with an annual turnover of less than $5 billion can claim an immediate tax deduction for the cost of assets such as machinery, vehicles, office equipment and tools up to a threshold of $150,000.
To summarise:
- Claim immediate tax deductions of assets costing up to $150,000
- Applicable to businesses with an annual turnover of less than $5 billion
- Claim now instead of claiming the deduction over several years.
As of 1 July 2023, the Instant Asset Write-Off Scheme will end. Next financial year, businesses with an aggregated turnover below $10 million will have to depreciate any assets they purchase worth more than $1000 over the effective life of the asset.
Should I use the asset write-off program before it ends?
It may seem counterintuitive, but it could be worthwhile ditching instant write-offs this year. If your business is financially sound, consider saving your deductions for when you really need that support.
This is especially so given how complex the old depreciation rules can be. The new landscape will be difficult for SMEs to navigate. Short-term pain for long-term gain may be the more sensible option.
Either way, it is best to enlist the advice of a taxation professional before making any decisions.
What assets are included in the Instant Asset Write-Off Scheme?
The scheme applies to assets that have a limited life expectancy and can reasonably be expected to depreciate in value over the time they are used.
Assets commonly written off in this scheme include:
- Tools and equipment (for example, electric sanders and saws)
- Computers, laptops and tablets
- Office furniture (freestanding)
- Office equipment (for example, coffee machines)
- Motor vehicles (for example, cars, vans and tractors).
What assets are NOT included in the Instant Asset Write-Off Scheme?
- Assets that are leased out, or expected to be leased out, for more than 50% of the time on a depreciating asset lease
- Horticultural plants including grapevines
- Software allocated to a software development pool (but not other software)
- Assets used in your research and development (R&D) activities
- Capital works including buildings and structural improvements.
Note: To claim a full deduction, the asset has to be used solely for business purposes. If the asset is used privately too, you’ll need to pro-rata any deductions.
Some other important things to know
Any assets you claim need to be purchased and installed in the period of 7.30pm AEDT on 6 October 2020 and 30 June 2023.
That means your assets need to be ready and up and running for use. If you’ve purchased your asset, and plan to get around to using it in a few years, it does not qualify.
Furthermore, having an ABN is not enough to qualify for the scheme. You must be registered as a business.
Regardless of the size of your business, we would highly recommend instructing a qualified tax practitioner to sort out your EOFY matters. An accounting professional will be able to maximise your tax return and ensure you comply with the law.
How Diamond IT can support your Technology Roadmap
Subject to eligibility advice on what is deductible, from your accountant, Diamond IT may be able to support you directly or with consultative advice around: Infrastructure, Cloud Computing and Cyber Security - Systems, Posture, Governance and Training.
As a general guide, we typically recommend that Diamond IT customers have a spare of all critical equipment (such as a spare laptop/PC/switch) on hand.
Our team has significant experience working with a range of customers to ensure their technology strategy and investments are in line with and supporting key business drivers and strategic objectives.
Talk to us today on 1300 307 907 for more information on how we can work together with you on your technology roadmap.
