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Are you clueless about the Instant Asset Write-Off? Are you curious about its purpose and how it can make an impact on your life?
To put it in plain terms, this rule permits business units to write off the cost of assets that match the conditions of eligibility in a year as opposed to having the deduction spread out over several years.
It can be of great assistance for start-ups and firms having equipment and machinery in mind.
Let’s explore deeper to know how it works and how you can avail it.
What is an Instant Asset Write-Off?
| Feature | Description |
| What it is | Tax deduction for the full cost of qualifying assets |
| Benefits | Potential tax savings and improved cash flow |
| Eligible assets | New and second-hand business assets (vehicles, furniture, computers, etc.) |
| Eligibility | Businesses with a turnover under $5 billion (exceptions apply) |
| Important Dates | Original program: Oct 6, 2020 – June 30, 2023 |
| Current Eligibility | Assets under $1,000 for businesses under $10 million turnover |
Here’s the tricky part.
So, let’s explain this with a simple example. Just imagine: you get a new piece of equipment for your firm. Concerning this, most of the time you can take its depreciation over a period of years.
However, the Australian government has put in place the instant asset write-off scheme by which the whole cost of qualifying assets is deducted in the same income year. Thus, this is the way from which you will decrease your taxable income and you will then have cash flow growth for the business.
Top Benefits of Instant Asset Write-Offs
Following are some of the benefits of Instant Asset Write-Offs:
- Tax savings: Through wholly expensing out the cost of the asset, you decrease the amount of tax you will be paying.
- Improved cash flow: The funds that previously were going to the depreciation deductions are now available for business needs.
- Incentivises investment: It is a scheme that gives the opportunity to businesses to invest in new equipment and equipment technology.
How Did The Instant Asset Write-Off Scheme Evolve?
The instant asset write-off has been the sole and most successful program. Before 2020, companies could only claim a deduction for an asset’s worth below a certain threshold which often was $150,000.
Nevertheless, the government knew that the pandemic had economic consequences in October 2020 and called off the limit. This is referred to as “temporary full expensing,” which was initially set to expire in June 2022 however the time was extended to June 2023.
Important Dates And Changes
The instant asset write-off scheme has seen some significant changes:
- Pre-October 2020: Threshold is set for the asset’s cost (e.g. $150,000)
- October 2020 – June 2023: The temporary reinstatement of the threshold was due to the pandemic, while that of “temporary full expensing” replaced it.
Current Status: The depreciation allowance for capital goods expired in June 2023. At present (22nd March 2024), the implementation of a new plan may be envisaged. One should definitely make sure that the information they get from the ATO is the most up-to-date as possible.
What Is The Eligibility Criteria For Instant Asset Write-Off?
Not all businesses qualify for instant asset write-offs. Here are the key criteria:
- Turnover: Your business must have an aggregated turnover of less than $5 billion.
- Asset cost: The cost of the asset must be less than the relevant threshold. This threshold has changed over time, so be sure to check the ATO website for the current amount.
- Asset type: Some assets are excluded, such as intangible assets and capital works.
- Simplified depreciation rules: If you’re a small business, you must use the simplified depreciation rules to claim the instant asset write-off.
Understanding the Thresholds
Before June 30, 2023, you could claim an immediate deduction for the full cost of an eligible asset as long as it was under a certain threshold.
Here’s a quick reference:
- Small Businesses (turnover under $10 million):
- Up to $150,000 (from March 12, 2020 to June 30, 2023)
- Thresholds varied for earlier periods
- Larger Businesses (turnover between $10 million and $500 million):
- Up to $150,000 (from March 12, 2020 to June 30, 2023)
- Thresholds varied for earlier periods
How To Maximise Your IAWO Benefit?
Let’s look at some practical tips to ensure you get the most out of the IAWO scheme:
- Keep Good Records: Observing and keeping the record of all of your asset purchases by including their costs, purchase dates, and their usage details is very important. This will be of great help to me when filing returns.
- Understand the Thresholds: Remember the different thresholds based on your turnover and purchase date. Don’t exceed the limit, or you’ll lose the IAWO benefit for that particular asset.
- Consider Asset Use: The IAWO applies only to the business portion of the asset. If you also use the asset for personal purposes, you can only claim a deduction for the business usage percentage.
Key Takeaways
The instant asset write-off scheme can be a valuable tool for Australian businesses, particularly those looking to improve cash flow and maximise tax benefits. But you need to understand the eligibility criteria, cost thresholds, and proper record-keeping practices.
And if you are looking for some business loans that can give your business an instant cash flow boost, you can check out Knote. They offer a variety of business loans that can help your business thrive.
