Tax Tips & Taking Advantage of the Instant Asset Write-Off
Business| By Pam Walkley | June 11, 2020
This tax deduction guide, including to 2020’s one-off $150,000 ATO instant asset write-off, could help maximise your return and boost your business success.
This year, all businesses, including SMEs, should seriously consider taking advantage of the 2020 short-term increase in the instant asset write-off threshold. This significant increase, from $30,000 to $150,000, is a tax deduction bonanza and eligible assets might include equipment, tools and motor vehicles. Access to this Australian Tax Office (ATO) scheme has also been extended to include businesses with an aggregated annual turnover of less than $500 million (up from $50 million). The main aim of the policy is to help businesses withstand and recover from any economic impact due to COVID-19 (coronavirus).
Not all businesses are aware of the new rules, with nearly 48% of SMEs who responded to recent research commissioned by Officeworks saying they didn’t know about them, though 71% said they intend to make use of the new benefits this year. This is well up on the 45% of respondents who said they had used the instant asset write-off in the past.
Timing is Everything in 2020 with the Instant Asset Write-Off
It is important to note the dates of eligibility for the instant asset write-off.
- The increased tax deduction scheme applies from 12 March for new or second-hand assets first used or installed ready for use in this time frame. Initially, the scheme applied until 30 June 2020, but the government has already announced an extension until 31 December 2020 (this proposed change is subject to the parliamentary process and is not yet law).
- Assets first used or installed ready for use before 12 March can only be claimed by businesses with less than $50 million aggregated turnover and under the $30,000 threshold.
How the New Instant Asset Write-Off Works
Businesses will be able to immediately deduct purchases of eligible assets each costing less than $150,000. The threshold applies on a per asset basis, so eligible businesses can write off multiple assets.
There are myriad ways business owners could take advantage of this new temporary tax time bonanza. For example, a respondent to the Officeworks commissioned research said they would completely redo their office and systems in the downtime presented by the pandemic. Many said they would purchase new equipment, including computers and printers. Others will use this tax deduction to replace vehicles as well as equipment.
A new NBN survey reveals 69% of respondents have already purchased one or more devices to support their online activities, with 56% of people working from home having created a new or dedicated office space.
What About Assets Shared Between Private and Business Use?
Does the instant asset write-off work for assets used both for personal and business purposes? Yes. The ATO recognises that many small business owners share assets between their work and home needs. But if you do this, you need to apportion the usage.
The ATO gives the example of a sole trader, Fiona, who buys a new computer for $6,800, used 80% of the time for her business. Fiona calculates the business use portion that she can claim a tax deduction for under the instant asset write-off as $5,440 (80% of $6,800).
Be Aware of Car Limits with the Instant Asset Write-Off
If you buy a passenger vehicle that can only carry a load of less than one tonne and fewer than nine passengers, the instant asset write-off is limited. The car limit is $57,581 for the 2019–20 income tax year and the write-off amount is limited to the business portion use of the car. For example, if you use your vehicle for 75% business use, the total you can claim under the instant asset write-off is $43,186 (75% of $57,581). Motorcycles and similar are exceptions.
More SME Tax Tips to Help Maximise Your Return
You may be able to boost your tax return by considering these tips and possible claims.
Tax Tip #1: Home-Based Business
If you have a home-based business and have a room or space set aside exclusively for your business activities, you could be eligible to claim:
- Occupancy expenses, such as mortgage interest or rent, council rates, land taxes and house insurance premiums.
- Running expenses, such as electricity, phone, decline in value of plant (such as machinery and purpose built buildings) and equipment, cost of repairs to furniture and furnishings, cleaning.
- The expenses of motor vehicle trips between your home and other places, if the travel is for business purposes.
Remember, if you claim occupancy expenses relating to your own home, you’re likely to have to pay capital gains tax (CGT) on part of any profits you make when you sell the property. This will be based on the proportion of space you used for business and the length of time it was used exclusively for business. Be sure to keep good records and speak to a tax professional.
Tax Tip #2: Claiming Operating Expenses
You could claim operating expenses, such as office stationery, staff wages and renting of business premises, in the year you incur them. An invoice is not necessary for an expense to have been incurred but you do need a record of the expense, says the ATO.
Tax Tip #3: Repairs and Maintenance
You could claim a tax deduction for repairs and maintenance expenses, such as painting, repairing leaks and replacement of machinery, tools or premises you use to produce business income, as long as those expenses are not money spent to purchase assets like plant and equipment or for significant improvements to premises or newly acquired machinery. These are capital expenses and treated differently and, as always, it’s best to check with a tax expert.
Tax Tip #4: Business Travel
As a business owner, the general rule is that you might be able claim deductions for travel expenses, such as airfares, accommodation and meals (on overnight trips), if you or your employee are travelling for business purposes. If you combine business and pleasure you must apportion the total costs between the two. A travel diary is recommended and may be required in certain circumstances to substantiate the claims.
This is general information only and does not constitute taxation or legal advice. Other requirements under the tax law apply. Seek professional tax and/or legal advice to determine whether you are eligible to claim a deduction for any purchases.