$150,000 instant asset write-off extended to 31 December 2020

Vania Wang • October 8, 2020

$150,000 instant asset write-off extended to 31 December 2020

As part of its efforts to counter the impact of COVID-19 on businesses, the Australian Government has expanded access to the instant asset write-off (IAWO) programme.

Under this scheme, Australian businesses with a yearly turnover of less than $500m can claim accelerated depreciation on certain capital expenses until the end of the year

After expanding the scope of the programme from assets worth $30,000 to 150,000 in March, the government has now extended the deadline for applying for this programme to December 31.

What is the $150,000 instant asset write-off?

The programme allows small businesses to claim tax deductions for new or second-hand asset purchases like office equipment, vehicles and tools.

The assets must have been first installed for use or used in the financial year you are claiming for. If you want to claim the IAWO for assets for the financial year 2020, the asset must have been installed or purchased by 30 June 2020.

The programme has been extended to 31 December 2020, which means eligible assets could be purchased before the end of the current calendar year to claim a tax deduction in the 2021 financial year ending 30 June 2021.

Calculating asset write-off

The write-off amount depends on the date when the asset was purchased and the relevant threshold amount. Thresholds and eligible turnovers have been revised on 12 March 2020; the details are available on the ATO website.

For instance, if your business has a turnover of below $500 million and you buy an eligible asset for $120,000 on 31 May 2020, and it’s installed and ready for use by 15 June 2020, you can claim a deduction of $120,000. If your business falls in the 27.5% tax slab, this will reduce the tax your company is liable to pay by $33,000.

Write-off for cars

The deduction for cars is limited to the sum of $57,581 for the financial year 2019-20 and $59,136 for the financial year 2020-21.

You must also consider the business use percentage of the asset when calculating the deduction. For instance, if you are a sole trader and buy a car for $30,000 but only expect to use it for business only 80% of the time, you are eligible for an immediate deduction of $24,000.

If your organisation is GST-registered, you should not include the GST claim when claiming IAWO for cars. For instance, if the vehicle costs you $40,000, the GST amount would be $3,636. So your deduction claim would be $36,364.

Parting Thoughts

This aimed at helping businesses to stick with their proposed investment plans, motivating them to make important investments that will help boost economic growth in the short-term. This programme is expected to support 3.5m businesses.

By bringing forward the tax deductions on eligible capital expenses, the instant asset write-off programme will help improve cash flow for businesses.

The threshold applies for each asset, so eligible businesses can instantly write-off multiple assets, provided that each asset costs no more than $150,000. The extension will provide businesses more time to acquire and install assets as they have time until the end of 2020.

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