Write it off...

Them: Just buy a car before the end of financial year, you can write it off for business!
You: Hmm, that seems too good to be true. What about depreciation?
Them: Nah, use the ‘small business write off’ thing.
You: I’m going to ask my accountant.
Me (your accountant): YAY!! A+ to you. Let’s chat about how this rule actually works! 

What is the Small Business Write-off (Instant Asset Write Off)?

The Instant Asset Write-Off (sometimes referred to as the Small Business Write-Off) is an instant deduction available for small businesses who have bought new or second hand assets such as vehicles, office equipment and tools. It means businesses can deduct the purchase price of assets instantly (i.e. in full, in the financial year they were purchased), instead of depreciating it and only being able to claim a portion of the cost price each financial year. 

For example: If you buy an asset for $20,000 and use this write off rule, then you get the $20,000 as a deduction in this financial year (assuming it is 100% for business purposes). Without this rule, you might only get $5,000 this year, and $5,000 next year, and so on (for 4 years total). Note that the value of the depreciation deduction does depend on the method of calculation. 

Eligibility

Whether or not you are eligible for this instant deduction depends on the following:

  • The business’ aggregated turnover
  • The purchase date of the asset
  • The date it was first used or installed for use
  • The cost of the asset

As the Government frequently updates the criteria for eligibility, the following simplified table is the best way to determine whether your business could be eligible for the instant deduction.

Dates of Purchase / Installation for Use

Business’ Aggregated Turnover

Cost of Asset (less than…)

12 March 2020 -
30 June 2020

Less than $500 million

$150,000

2 April 2019 -
11 March 2020

Less than $50 million

$30,000

29 January 2019 -
2 April 2019

Less than $10 million

$25,000

1 July 2016 -
28 January 2019

Less than $10 million

$20,000

12 May 2015 -
30 June 2016

Less than $2 million

$20,000

1 January 2014 -
12 May 2015

Less than $2 million

$1,000

1 July 2012 -
31 December 2013

Less than $2 million

$6,500

1 July 2011 -
30 June 2012

Less than $2 million

$1,000

What is an asset?

An asset, in the business and accounting world, is an item of property which is owned by a person, or a business, that has value and can be used to pay debts and commitments.  For the purpose of this blog, assets are commonly things like cars, kitchen equipment, camera equipment and office furniture - things that give you future benefit, and that businesses use to generate income.

Case Studies

Note: For the following case studies, let’s assume the businesses meet the aggregated turnover tests to be eligible for the instant asset write-off. 

My small business bought an Audi A7, worth $115,000 on the 15th of March 2020, designed to carry passengers. Can I claim the instant asset write-off deduction?

This example is a bit tricky. At first glance, it would seem that as the cost of the Audi is less than the $150,000 threshold, then the whole amount should be instantly deductible. 

However, this motor vehicle is above the car cost limit of $57,581, which means that the business can only claim an instant deduction of $57,581 instead of the full $115,000. 

The $57,581 should also be reduced for any personal use. 

My small business bought a brand new Holden Colorado, not designed to carry passengers and with all trade tools in the tray for $75,000 on the 10th of June 2020. Can I claim the instant asset write-off deduction?

Similar to the above example, the purchase of the Holden Colorado (a utility vehicle) is above the car cost limit. However, this vehicle is not designed to carry passengers and has been set up with trade tools and drawers in the tray, so the car cost limit does not apply. Therefore the business can claim an instant deduction of $75,000, assuming it is 100% for business use.

I run a photography studio and I purchased a new camera on the 10th of March 2020. Can I claim the instant asset write-off deduction?

If the camera comes under the $150,000 cost threshold, and is for 100% business use, then you can claim the entire purchase cost of the camera. Keep those receipts for me!

I purchased a brand new printer worth $2,500 (80% business use) on the 1st of April 2020. How much can I claim as an instant deduction?

Your business can only claim the business use portion of the cost of the printer. Therefore, the business can claim $2,000 ($2,500 x 80%) as an instant deduction. 

I don’t meet the criteria for an instant deduction - what does this mean?

If you earn over the aggregated turnover criteria, this doesn’t mean you can’t claim a deduction for assets purchased for business purposes, it just means you can’t claim an instant deduction. You are still able to claim depreciation as a deduction (more on depreciation and what it means in another blog).

What happens if the ATO abolishes or alters the deduction?

If the ATO abolishes this deduction it will not affect any assets you bought prior to their decision. Those deductions made still count. It will mean that you can no longer claim an instant deduction when you purchase assets from now - but, you will still be able to claim the assets depreciation (a smaller deduction each year for a few years).

 

xxx Lauren

(and co-author Caitie Copley)

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