Instant Asset Write-off Increase (IAWO)

April 17, 2020

Instant Asset Write-off Increase (IAWO)

April 17, 2020

The Government is increasing the instant asset write-off threshold from $30,000 to $150,000. It is also expanding access to the scheme to include businesses with an aggregated annual turnover of less than $500 million (up from $50 million).

Since the Government’s announcement we have received numerous enquires about the $150k instant- asset-write-off, and rightly so.

The Federal Government’s increase to the instant asset write-off threshold presents a significant opportunity for businesses, encouraging them to bring forward any planned (or unplanned) capital spending.

What is changing?

The instant asset write-off threshold is being increased 5-fold from $30,000 to $150,000, on a per asset basis.

The business eligibility criteria for the instant write-off has been expanded from those with an annual turnover of up to $50 million to include businesses with annual turnover up to $500 million.
The changes are in immediate effect – as of 13 March 2020, and will end on 30 June 2020.

What is classified as an eligible asset?

An immediate deduction can be claimed on any depreciable asset purchased either new or second-hand for your business, such as:

  • Yellow goods
  • Manufacturing Machinery
  • Plant and machinery
  • Motor vehicles.
  • Computers, laptops and tablets
  • Office furniture and equipment

Importantly, under the instant asset write-off rules, the asset must not only be purchased but have been either used or installed ready for use in the year it is intended to be claimed.

What is claimable?

Asset purchases need to be made by 30 June 2020 by the entity intending to make a claim. The write-off is available for multiple assets, as long as each asset’s purchase price is less than the $150,000 threshold.

To ensure an asset’s purchase price is below the $150,000 threshold, it is essential to know what the tax office defines as an asset’s cost.

According to the ATO, “The cost of an asset includes both the amount you paid for it and any additional amounts you spent on transporting and installing it ready for use. The cost also includes amounts you spent on improving the asset”.In calculating the claimable amount, any proportion of the asset’s use that is for personal reasons must be subtracted. I.e., If 20% of a motor vehicle’s use is for private purposes, 80% of the purchase price is classified as the taxable purpose proportion of the asset and is considered tax-deductible, under the stimulus package.

Only assets with a gross cost up to the $150,000 threshold are eligible. For example, a $200,000 vehicle used 75% for business purposes would not be eligible.

Can Businesses Finance The Asset?

Yes! Businesses can finance the purchase of assets by way of loan, chattel mortgage or finance lease.

If you are considering funding the asset, please contact us to ensure appropriate funding is secured, as certain lease types (operating leases) do not transfer ownership to the lessee and may impact eligibility for the instant asset write-off!

Additionally, Assets purchased from overseas are also eligible to be financed under the IAWO criteria.

Is GST included or excluded in the threshold limit?

Whether the threshold is GST exclusive or inclusive will depend on your GST status.

If a business is registered for GST, the instant asset write-off threshold is exclusive of any GST.

If a business is not registered for GST, the instant asset write-off threshold is inclusive of any GST.

Timing

Eligible assets can be written off in the year they are first used or installed ready-for-use. Given the short window increasing the instant asset write off ($150,000) and eligible businesses ($500M revenue), this must happen before 30 June. At this stage, it is intended that from 1 July 2020, the programme will revert to $30,000 per asset for small business entities only.

That means that for all assets purchased before 30 June 2020, the full cost will be wholly deductible in the business’s 2019/20 tax return, rather than being depreciated over numerous financial periods bringing forward a significant cash benefit.

Finally

These are indeed trying (and unprecedented) times for many businesses, families and our broader community. We are here to help, so if we can be of any support to your clients in the time of need, please don’t hesitate to call or email me directly.

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