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Instant asset write-off for eligible businesses

Updated: Jul 16



Businesses have welcomed a budget extension to instant investment write-offs. The key budget measure for most firms is a one-year extension to the government's temporary "full expensing" scheme, which now allows businesses with a turnover or income of less than $5 billion to immediately write-off the cost of assets they first use or install by June 30, 2023.


While the sticker cost to the budget of $17.9 billion over the next four years looks impressive, the longer-term cost to the government will be much more modest, at $3.4 billion.


That's because an instant write-off simply allows businesses to claim deductions upfront, rather than spread over several years through depreciation.

It's also because the move will "bring forward" a lot of investment that would have been made over the next few years, as companies look to take advantage of the instant tax break.


However, because the policy gives businesses a short-term cash flow boost and encourages them to bring forward investment, it is hoped that it will supercharge the private sector's post-COVID recovery. It is again combined with an extension of the "loss carry back" that allows eligible companies to use tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year when they lodge their 2022-23 tax return.


This is expected to hit short-term company tax revenues by $2.8 billion, but boost business investment further by freeing up more cashflow to spend now.


Eligibility

Eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use.

Instant asset write-off can be used for:

· multiple assets, if the cost of each individual asset is less than the relevant threshold

· new and second-hand assets.


If you are a small business, you will need to apply the simplified depreciation rules in order to claim the instant asset write-off. It cannot be used for assets that are excluded from those rules.


The instant asset write-off eligibility criteria and threshold have changed over time. You need to check your business's eligibility and apply the correct threshold amount depending on when the asset was purchased, first used or installed ready for use.


Recent changes

For assets first used or installed ready for use between 12 March 2020 until 30 June 2021, and purchased by 31 December 2020, the instant asset write-off:

  • threshold amount for each asset is $150,000 (up from $30,000)

  • eligibility extends to businesses with an aggregated turnover of less than $500 million (up from $50 million).


From 7.30pm AEDT on 6 October 2020 until 30 June 2022, temporary full expensing allows a deduction for:

  • the business portion of the cost of new eligible depreciating assets for businesses with an aggregated turnover under $5 billion or for corporate tax entities that satisfy the alternative test

  • the business portion of the cost of eligible second-hand assets for businesses with an aggregated turnover under $50 million

  • the balance of a small business pool at the end of each income year in this period for businesses with an aggregated turnover under $10 million.


Speak to your accountant for more information and how you can benefit from the Instant asset write-off.

Source: Instant asset write-off | Australian Taxation Office (ato.gov.au)

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