Instant Asset Write-off: A checklist

June 2015

If you're thinking about the $20,000 deductions that are available to small business, here's what you need to be aware of to ensure your business is eligible. 

Given the amount of commentary around the instant asset write-off, we've put together a quick reference list of questions and answers to help you decide whether your business is eligible and to ensure you use the concessions appropriately when buying tools and equipment for your business. 

Are you a business? 

To use the instant asset write-off, the first eligibility requirement is that you need to be a business or operating a trust as a business – not just an entity holding assets for investment purposes.  

Is your aggregated turnover below $2 million?

The second test is the aggregated turnover of your business needs to be below $2 million.  

Aggregated turnover is the annual turnover of the business plus the annual turnover of any "affiliates" or "connected entities". The aggregation rules are there to prevent businesses splitting their activities to access the concessions.  

Another entity is connected with you if:
  • You control or are controlled by that entity; or
  • Both you and that entity are controlled by the same third entity.

How does the Instant Asset Write off differ from previous deduction rules? 

Generally speaking, a deduction is available to small business purchases made for the business. What has changed is the speed at which they can now claim a deduction. 

Prior to Budget night, small businesses could immediately deduct business assets of up to $1000, however that changed from 7.30pm 12 May 2015 to $20,000 for small businesses with an aggregated turnover of less than $2 million. The increased threshold will apply until 30 June 2017.

The onus of proof – assets must support your business

As a small business owner who is eligible for the instant asset write-off, SMEs need to establish that there is a relationship between the asset purchased by the business and how the business generates income. 

For example, four big screen televisions are unlikely to be deductible for a plumbing business, however for two vehicles valued under $20,000, the relationship is more clear cut.

What about assets worth more than $20,000

For small business, assets above $20,000 can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter.

Account for GST in the value of your new assets

If your business is registered for GST, the cost of the asset needs to be less $20,000 after the GST credits that can be claimed by the business have been subtracted from the purchase price.  If your business is not registered for GST, it is the GST inclusive amount.

New and second-hand goods are ok

It does not matter if the asset you are buying for your business is new or second hand.  So, you could still claim the deduction on say, second hand machinery you have bought.

Assets must be ready to use

If you use the $20,000 immediate deduction, you have to start using the asset in the financial year you purchased it (or have it installed ready for use).  This prevents business operators from stockpiling purchases and claiming tax deductions for goods they have no intention of using in the short term.

Business and personal use

Where you use an asset for mixed business and personal use, the tax deduction can only be claimed on the business percentage.  So if you buy an $18,000 second hand car and use it 80% for business and 20% for personal use, only $14,400 of the $18,000 can be claimed.

What doesn't qualify?

There are a number of assets that don't qualify for the instant asset write off as they have their own set of rules.  These include horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc. 

Get guidance on what you can and can't buy

Contact us on (02) 9957 4033 for more information about the Instant Asset Write-Off, your cash flow and your eligibility for the deduction.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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