Instant asset write-off increased to $30,000

Earlier this year The Federal Government announced it would extend the instant asset write-off for another year, and in the Budget announcement the Treasurer has added another sweetener for small business - extending the threshold to $30,000.

When it comes to small business cash-flow is king, and being able to invest in your business is crucial. With the end of the financial year just around the corner, now is the time you should be looking to take advantage of the instant asset write-off to give your business a boost.

What is the instant asset tax write-off?

The instant asset tax write off has been available to small businesses with a turnover of less than $10 million for the past few years. It enables businesses to instantly deduct assets instead of claiming deductions over a number of years. 

In January, the Prime Minister announced that the threshold for assets purchased under the scheme would increase to $25,000. As part of the April Federal Budget announcements that amount was increased again to $30,000. 

Instant asset write-off extended

The Budget contains important changes to the instant asset write-off rules. These changes are in addition to other changes announced a few weeks ago.

There are two key changes:

  • First, the write-off has been extended to medium sized businesses, where it previously only applied to small business entities.
  • Secondly, the instant asset write-off threshold is to increase from $25,000 to $30,000. The threshold applies on a per asset basis, so eligible businesses can instantly write-off multiple assets.

The threshold increase will apply from 2 April 2019 to 30 June 2020.

But, there’s a catch. With the Budget unveiled so close to the announcement of an election, there is no chance that any of these measures will get through Parliament before the election is called. That means that everything announced will only become law if the Coalition wins the election or if Labor agrees to match the government’s announcements.

Small businesses

Small business entities (i.e. those with aggregated annual turnover of less than $10 million) will be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from Budget night (i.e. 2 April 2019) to 30 June 2020.

Small businesses can continue to place assets which cannot be immediately deducted into the small business simplified depreciation pool and depreciate those assets at 15 per cent in the first income year and 30 per cent each income year thereafter. The pool balance can also be immediately deducted if it is less than the applicable instant asset write-off threshold at the end of the income year (including existing pools). The current "lock out" laws for the simplified depreciation rules (i.e. these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2020.

Medium-sized businesses

Medium sized businesses (i.e., those with aggregated annual turnover of $10 million or more, but less than $50 million) will also be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from Budget night to 30 June 2020.

The purchase date is critical. The concession will only apply to assets acquired after 2 April 2019 by medium sized businesses (as they have previously not had access to the instant asset write-off) up to 30 June 2020.

Medium sized businesses do not have access to the small business pooling rules and will instead continue to depreciate assets costing $30,000 or more (which cannot be immediately deducted) in accordance with the existing depreciating asset provisions of the tax law.

Arrangements prior to 2 April 2019

The Government has already legislated a $20,000 instant asset write-off for small businesses. Eligible small businesses can already immediately deduct purchases of eligible assets costing less than $20,000 that are first used or installed ready for use by 30 June 2019.

On 29 January 2019, the Government announced that it would increase the instant asset write-off threshold for small businesses from $20,000 to $25,000 and extend the instant asset write-off for an additional 12 months to 30 June 2020.

These changes interact with the changes being announced as part of the Budget. This means that, when legislated, small businesses will be able to immediately deduct purchases of eligible assets costing less than $25,000 that are first used or installed ready for use over the period from 29 January 2019 until Budget night.

Date of effect

The changes announced in the Budget will apply from 2 April 2019 to 30 June

Using the write-off to your advantage

Tax savings are great, but every $1 spent brings in only 27.5 cents in saved tax. So using the instant asset write-off to its full effect means looking at the bigger picture and examining how you can make the tax break work for your business beyond simply pocketing the tax saved.

There’s nothing to be gained by simply spending money for the sake of a tax break. You need to keep a sharp strategic eye on how you can use the tax break to lift your business to the next level so that investment now leads to higher profitability and productivity going forward.

Here’s how you can do that: Do a ruthless, focused review of your business and highlight where you're falling down. If you’re in the restaurant industry for instance, you might be turning out the best food in town, but if your décor is dated and driving away the punters, your quality food will count for nothing. So you might need to focus on getting your front-of house operation up to speed by embarking on a major renovation. The $30k tax break will help you. Everything from tables and chairs, to decorative fittings, to bar set-up and outdoor furniture can be claimed.

Case study: Elaine runs a café in inner Melbourne. She has used the instant asset write off to immediately deduct the cost of a new coffee machine and new café furniture including tables, chairs and artwork for the walls. Her café is now more welcoming, turnover is up and her new coffee machine means the coffee is better!

Case study: Bill is a self-employed electrician in Darwin. He has used the instant asset write-off to replace his 15 year old ute. The model he’s replaced it with, at a cost of $19,000, is still second hand but much more recent and consequently more reliable; his costs of servicing are down, fuel consumption is lower and he can spend more time on the road helping clients and less time in the car mechanics getting his vehicle fixed!

 

 

Invest in technology

Nothing dates faster than technology. Computer systems that were cutting-edge two years ago can be dinosaurs now. So if your business is using outdated tech, the chances are you’re slowing transaction times, increasing employee frustration and potentially driving away customers. The answer is to use the tax break to upgrade. Whether that means new computers for employees, a new POS system for sales or a new accounting system to track your business, you can easily find that money spent now – with a corresponding tax benefit – will flow through to the bottom line next year.

Consider also the changing way that we work today. Many employees prefer to work from home and with potential savings in office costs, many businesses are tapping into home-based or flexible working. That means that desktop computers are increasingly being swapped for laptops and tablets which are better attuned to a flexible, mobile workforce. The instant write-off might be just the incentive you need to make a change for your business.

Case study: Jill runs a scented candle business located just outside Brisbane. Her small sales force is often on the road scouting for new orders from gift shops and other retailers. Jill has used the instant asset write-off to claim an immediate tax deduction for iPads purchased for each of her sales team members. Not only do the iPads mean that sales employees are connected to the office while out on the road, and able to deal with work emails wherever they are, they can also use the devices to display presentations and other promotional material to potential customers.

Invest in employees

Upgrading capital equipment has a double benefit. First of all, you’ll save tax and secondly, you’ll have the potential to improve productivity. But to unlock those productivity benefits, you may need to stream some of those tax savings through to your employees by upgrading their skills. Whether it’s improved IT skills, customer care or management training, a dollar spent on development will reap rewards down the line. Combine your increasingly skilled workforce with an improved technological interface and you have the recipe for success going forward.

 

 

 

This advice is of a general nature. Please speak to your tax professional for advice tailored to your individual circumstances.

 

Mark Chapman

Mark Chapman is Director of Tax Communications for H&R Block Australia. He has been a tax adviser specialising in advice for individuals and small businesses for over 20 years, in both the UK and Australia. Mark is a Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from University of New South Wales. To find out more about how H&R Block can assist your small business, visit www.hr.block.com.au

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