COVID-19 has thrown the economy into a tailspin, and many business owners are rightfully prioritising how to reduce expenses and improve cash flow. Many that were planning to expand operations or purchase new assets have been reconsidering whether now is the right time and whether they can even afford it at all.
In response to the economic slump and to support businesses to continue to grow and scale, on 12 March 2020 the Federal Government announced an increase to the Instant Asset Write-off threshold from $30,000 to $150,000 as part of its COVID-19 stimulus package. This is a $700 million injection into this scheme alone.
This means that many more businesses around Australia will have access to support measures that provide them with the cash flow to invest in assets they require to succeed now and into the future.
The higher Instant Asset Write-off threshold provides cash flow benefits for businesses that 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 immediately write-off multiple assets. It also applies to both new and used assets, so long as the assets have been purchased in the current financial year.
Keep in mind that Instant Asset Write-off is only applicable until 30 June 2020 for assets first used or installed ready for use in this timeframe and is due to revert to $1,000 for small businesses (turnover less than $10 million) as of 1 July 2020.
So, you can see the benefit in considering an asset purchase for your business over the coming months. It may actually be a positive strategy for businesses to invest now, when stimulus is high and long-term benefit is greater than ever.
Who is eligible for the Instant Asset Write-Off incentive?
Eligibility to take advantage of the Instant Asset Write-off depends on a number of factors including:
- your aggregated turnover (the total ordinary income of your business and that of any associated businesses)
- the date you purchased the asset and when it was first used or installed ready for use
- the cost of each asset being less than the threshold.
The government is expanding access with its $700 million injection so that more businesses can take advantage of the Instant Asset Write-Off. The annual turnover threshold for businesses is increasing from $50 million to $500 million. Expanding the threshold will mean an additional 5,300 businesses who employ around 1.9 million Australians will be able to access the scheme for the first time.
In order to be eligible for the Instant Asset Write-off benefit, assets must meet certain eligibility criteria:
- The entire cost of the asset must be less than $150,000 (from 12 March 2020) or $30,000 (before 12 March 2020), not just the business-use portion, and inclusive of GST.
- The asset purchased must be first used or installed and ready to use in the income year you're claiming it in.
How to Apply for the Instant Asset Write-off?
The incentive is only on the table from 12 March 2020 until 30 June 2020 as part of the Federal Government’s coronavirus stimulus package, so it’s best to start the application process sooner rather than later.
To claim the Instant Asset Write-off, you need to make the purchase and use the asset for your business in the same year that you claim the deduction. The instant asset write-off is generally claimed back via your business tax return.
Note that while the asset can be new or used, there are a small number of assets that are excluded. In addition, if you purchase a car for your business, the Instant Asset Write-off is limited to the business portion of the car limit of $57,581 for the 2019–20 income tax year. You cannot claim the excess cost of the car under any other depreciation rules.
If you have any questions at all regarding the Instant Asset Write-off and asset finance for your business, please get in touch with our Director of Asset Finance, Rachael O'Hayon.
More information regarding the Instant Asset Write-off can also be found using the links below.