The instant asset write-off is not available for all business assets and determining which assets are eligible may pose a challenge for many small and medium-sized business owners (SME) and their advisers.
The simplified depreciation rules for small business taxpayers are set out under Subdivision 328-D Income Tax Assessment Act 1997 (ITAA 1997). For a small business entity to access the instant asset write off, they must not only satisfy the small business entity criteria, they must also elect to use the simplified depreciation rules under Subdivision 328-D.
A small business entity that elects to depreciate assets under Division 40 ITAA 1997 (i.e. the SBE does not pool their assets) will not be eligible for the instant asset write-off. To be eligible for the small business income tax concessions, a small business must have an aggregated turnover of less than $10 million and be ‘carrying on a business’.
A medium size entity (between $10 million and $50 million aggregated turnover and carrying on a business) is not required to make an election to use simplified depreciation and will be able to claim an immediate deduction for eligible depreciating assets.
What type of assets are eligible for the instant asset write-off?
Determining what type of assets are eligible for the instant asset write-off is not as straight forward as one is led to believe. The instant asset write-off is only available for assets that satisfy the definition of a depreciating asset under Section 40-30 ITAA 1997.
Working through the definition is not a simple task and SME taxpayers are urged to seek advice from their tax advisers in order to determine if they are eligible to claim the instant asset write-off. SME taxpayers and their tax advisers are urged to work through the relevant legislation to determine if an asset is eligible for the instant asset write-off as some common asset purchases may not fall within the rules.
What is a depreciating asset?
In general terms, a depreciating asset is an asset used in the course of a business. The asset will have a limited useful life and the value will diminish over time.
For the purpose of the instant asset write off, eligible assets may include:
- A work use vehicle
- Office furniture (desks, chairs, bookshelves)
- Computer equipment
- In-house software (this is software specifically designed for your business and does not include off the shelf software products or cloud-based software subscriptions)
- Mining, quarrying or prospecting rights or information
- Certain intellectual property (e.g. patents, registered designs, and copyright)
- Eligible plant & equipment (some improvements may be excluded)
Assets that are excluded from the instant asset write off include:
- Eligible work-related items – where Section 58X of the Fringe Benefits Tax Assessment Act 1986 applies and the work-related item has been provided to the employee as a benefit in respect of employment
- Capital works (new buildings and certain improvements)
- Intangible assets (e.g. computer software, goodwill)
- Improvements to land or a fixture to land, whether the improvement or fixture is removable or not (except in limited circumstances)
- A depreciating asset included in a claim for the R&D tax offset
- Inventory and consumable items
What can you deduct?
An eligible SME can claim a deduction for the taxable purpose proportion (business use) of the adjustable value of the depreciating asset. The adjustable value will generally be the cost of the asset including any second element costs such as freight or installation costs. It is important to note that while the deduction is limited to the taxable purpose proportion, the total cost of the asset must be under the relevant instant asset write-off threshold in order to be eligible for a deduction.
The asset must also be installed and ready for use by the relevant date in order to be eligible for the instant asset write-off, it is not sufficient to have merely placed an order for an asset. This will be particularly relevant for SME taxpayers who may be looking to place orders for assets online or from overseas.
This is demonstrated in the examples below:
On 30 January 2019 Jill buys a new vehicle to use in her consulting business. Jill is registered for GST and has determined the business use of the vehicle based on her log book to be 75%. The driveaway cost of the vehicle excluding GST is $24,700.
Jill can claim an immediate deduction for $18,525 ($24,700 x 75%).
On 3 April 2019, James also purchases a new vehicle to use in his business. James estimates the private use of the vehicle to be around one third. James is not registered for GST. The driveway cost of the vehicle including GST is $40,000. The taxable purpose proportion of the vehicle is $26,667 which is under the $30,000 instant asset write off however, James is not eligible for an immediate deduction as the cost of the vehicle exceeds the instant asset write-off threshold.
ABC Construction Pty Ltd places an order for an item of a plant from an overseas supplier on 10 June 2019. The company pays for the order however the item is not shipped until 2 July 2019. The GST exclusive cost of the asset was A$27,500. ABC Construction Pty Ltd is not eligible to claim the instant asset write-off in the 2019 year as the asset was not installed and ready for use by 30 June 2019.
Instant asset write-off thresholds
The relevant dates and thresholds are set out in the table below:
Key Dates (Asset must be installed and ready for use)
Taxpayers registered for GST – (net of GST)
Taxpayers not registered for GST – (incl. of GST)
12 May 2015 to 29 January 2019
29 January 2019 to 7.30 pm AEDT 2 April 2019
7.20 pm AEDT 2 April 2019 to 30 June 2020
Do you require more information about the instant asset write-off?
If you require assistance to determine your businesses eligibility for the instant asset write-off, please contact your local RSM office.
The information above is for general use only and may not take into account the specific circumstances of your business. As such the information is a guide only and can not be relied upon as tax advice.