There is some good news for business on the instant asset write-off front. Both the size of business and the amount you can write off instantly as a tax deduction has been increased. While these measures are welcome, it has added a little complexity for the year.
If you were to purchase an item of equipment, under traditional depreciation rules the asset would need to be capitalised. You could then claim a tax deduction for part of the cost of the asset each year as depreciation. That is, you would have to write the asset off over its lifetime.
The rule in effect for the 2017/18 year, is if you were a small business with a turnover less than $10 million you could immediately write off in full as a tax deduction an eligible asset held ready for use costing less than $20,000.
The effect of this instant asset write-off is saving a lot more tax in the year that you purchased the item of equipment. For example, if you purchased an item of equipment for say $18,000 and your average tax rate is 30% then you could save $5,400 in tax in the year of purchase.
You must remember though, if you purchase an item for $18,000, you are not getting a refund of $18,000 from the ATO, but merely a tax deduction of $18,000.
For the 2018/19 financial year, there have been a number of changes to the instant asset write-off provisions. If you are a small business (turnover less than $10m) and you purchase an eligible asset during the 2018/19 financial year, depending on when you purchased it and how much it cost will determine if it can be instantly written off.
The instant asset write-off thresholds for small businesses for the 2018/19 year are:
|1 July 2018 to 28 Jan 2019||$20,000|
|29 Jan 2019 to 7.30pm 2 April 2019||$25,000|
|7.30 pm 2 April 2019 to 30 June 2019||$30,000|
However, if you are a medium sized business, that is your turnover is more than $10 million but less than $50 million you can also now avail yourself of the instant write-off. If you purchase eligible assets after 7.30pm 2 April 2019 that cost less than $30,000 you may also instantly write them off.
If you are considering the purchase of an item of equipment before 30 June 2019 then you should be considering the instant asset provisions. Your tax saving by purchasing an eligible asset costing less than $30,000 could be considerable.
If you need further assistance to determine your eligibility for the instant asset write-off or any other issue, get in contact with your friendly local RSM representative.