INSTANT ASSET WRITE-OFF
On 29 January 2019, the Prime Minister announced that the government will introduce legislation to increase the $20,000 instant asset write-off threshold to $25,000 from 29 January 2019 until 30 June 2020. This proposal is not yet law.
Between now and 30 June 2019, small businesses can immediately write off any asset purchase costing less than $20,000, but caution needs to be taken when claiming the write-off.
To minimise your chances of having the ATO challenge the deduction, here are some key tips to be aware of:
Only small businesses qualify.
This might seem obvious but you actually have to be in business to be a small business, not just a holder of an ABN number. Small business’ and employees may be interested in a related article on occupation specific deductions.
Understand the tax break.
It is not a cash hand-out but a deduction from your taxable profit. If you spend $20,000 from on a capital purchase, you will receive a 28.5% per cent deduction which equates to a $5,700 reduction in your tax and means you will still be out by over $14,000 on the purchase.
If it’s something you were going to purchase anyway, go ahead and enjoy the benefit but if you are thinking of buying something, purely to save tax, you might want to think again.
The amount you can claim is GST exclusive. This is relevant if your business is registered for GST and can claim an input tax credit on the purchase. While only the taxable purpose proportion is deductible, the entire cost of the asset must be less than the threshold.
Ready for use
The asset must have been installed and ready for use. This is particularly important if you purchased the asset just before the end of the financial year. If you’d purchased it before 30 June but didn’t have it available for use until July, you can only claim the deduction against next year’s profit.
You can claim a deduction for second hand assets.
To claim the full deduction, the asset has to be used in the business and if there has been personal use, the deduction needs to be pro-rated to reflect this.
Keeping all relevant paperwork is essential for tax. SL Accounting services can help you with strategies and tools to help simplify your books.
Sharon Law SL Accounting Services