What’s Changed with the Instant Asset Tax Write-off?

As part of the Federal Budget released in May, the government announced that it would be extending ‘temporary full expensing’ until 2023, giving COVID-fatigued businesses the confidence and kickback needed to get the new financial year off to a solid start.

If you have been considering business purchases, investing in a new computer, business vehicle or specific tool to expand operations, read on to find out how it works and how you or your business could benefit.

What is the ‘temporary full expensing’ scheme?

Initially introduced in 2020, the latest 12-month extension to the ‘temporary full expensing’ scheme means any Australian business with an annual total income of up to $5 billion or 99% of them can take advantage, deducting the business portion of eligible depreciable assets used or installed by 30 June 2023.

There is no purchasing limit on assets.

Temporary full expensing also applies to eligible second-hand depreciating assets for businesses with an aggregated turnover of less than $50 million.

You can claim expenses on equipment or assets used for business-related purposes, including vehicles, tools, machinery and office technology.

What should you know about the instant asset write-off?

Eligible new assets must be first used or installed by 30 June 2023, a 12-month extension

  • Businesses with an aggregated turnover of up to $5 billion are now eligible, up from the previous aggregated turnover limit of $500 million
  • For businesses with aggregated turnover of less than $50 million, the assets can be second-hand
  • There is no limit on the value of the asset purchased; it was previously $150,000

What are examples of eligible businesses or eligible assets under the instant asset write-off scheme?

  • To be eligible, you must: have an aggregated turnover of less than $5 billion (up from previous aggregated turnover of $500 million). The business portion of the Assets must cost less than the instant asset write-off threshold and be purchased and used in the year the write-off is claimed. You can immediately deduct the business portion of the asset’s cost under temporary full expensing (tax deduction)
  • Aggregated turnover is your annual turnover (all ordinary income you earned in the ordinary course of running a business for the income year) plus the annual turnover of any business connected or affiliated with you, whether in Australia or overseas
  • The temporary full expensing scheme (previously $150,000 Instant Asset Write-Off) provides businesses with an asset (such as business vehicle) write-off for assets which are purchased and used in the year that the write-off is claimed. (business.gov.au)
  • Businesses with an aggregated turnover of up to $5 billion are now eligible, up from the previous aggregated turnover limit of $500 million
  • Example 1: Purchase of a $70,000 motor vehicle for business purposes – The vehicle is used 100% for business purposes. The business also bought a new printer for $700 that is used 100% of the time for business purposes – meaning they are able to write off a total of $70,700 under the instant asset write-off thresholds announced as part of the federal budget released in May
  • Example 2: A sole trader buys a $30,000 hatchback and finds that they use it for 75 per cent business purposes and 25 per cent personal use = they can claim back 75 per cent of the total purchase price, meaning they are able to write off a total of $22,500

How does the instant asset write-off benefit you?

The scheme benefits businesses because it allows them to claim the full tax deduction of an asset upfront, rather than deducting depreciating costs over the coming years. This will ultimately reduce the amount of tax they have to pay and increase cash flow.

The instant asset write-off allows eligible businesses to claim an immediate deduction for certain costs relating to depreciating assets.

The point of the scheme is to encourage business owners to spend and invest now, injecting cash into the economy, creating jobs and boosting consumer confidence.

According to the government, tax incentives like this one have been successful, with investment in machinery and equipment increasing at the fastest quarterly rate in nearly seven years in the December quarter.

Small business should take note, this means big business opportunities for you.

Off the back of the budget announcement, we suggest small business owners should reach out to their brokers and accountants to learn more about the changes and how it could benefit them and their businesses.

Find out how Jones Financial Group can help you secure finance for your business assets and take advantage of the instant asset tax write off. Get in touch today!

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