INSTANT ASSET WRITE-OFF FOR ELIGIBLE BUSINESSES

Under the instant asset write-off, 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 as long as the cost of each individual asset is less than the relevant threshold
  • new and second-hand assets.

It cannot be used for assets that are excluded from the simplified depreciation 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. This depends on when the asset was purchased, first used or installed ready for use.

Recent changes

From 12 March 2020 until 31 December 2020 the instant asset write-off:

  • threshold amount for each asset is $150,000 (up from $30,000)
  • eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million).

Eligibility

Eligibility to use instant asset write-off on an asset depends on:

  • your aggregated turnover (the total ordinary income of your business and that of any associated businesses)
  • the date you purchased the asset
  • when it was first used or installed ready for use
  • the cost of the asset being less than the threshold.

If you run a small business and choose to use the simplified depreciation rules, you must use instant asset write-off on all eligible assets.

Businesses with an aggregated turnover of $500 million or more are not eligible to use instant asset write-off.

From 1 January 2021 the instant asset write-off will only be available for small businesses with an aggregated turnover of less than $10 million and the threshold will be $1,000.

Instant asset write-off thresholds

 

Eligible businesses Date range for when asset first used or installed ready for use Threshold
Less than $500 million aggregated turnover 12 March 2020 to 31 December 2020 (see note) $150,000
Less than $50 million aggregated turnover 7.30pm (AEDT) on 2 April 2019 to 11 March 2020 $30,000

Note: For eligible businesses with an aggregated turnover from $10 million to less than $500 million, the $150,000 threshold applies for assets purchased from 7.30pm (AEDT) on 2 April 2019 but not first used or installed ready for use until 12 March 2020 to 31 December 2020.

Excluded assets

You must use the general depreciation rules for the following depreciating assets – as they are specifically excluded from the simplified depreciation rules:

Car limit

A car limit applies to the cost of passenger vehicles (except a motorcycle or similar vehicle) designed to carry a load less than one tonne and fewer than nine passengers. The one tonne capacity relates to the maximum load your vehicle can carry, also known as the payload capacity.

The payload capacity is the gross vehicle mass (GVM) as specified on the compliance plate by the manufacturer, reduced by the basic kerb weight of the vehicle.

The basic kerb weight is the weight of the vehicle with a full tank of fuel, oil and coolant together with spare wheel, tools (including jack) and factory-installed options. It does not include the weight of passengers, goods or accessories.

  • Payload capacity = GVM – basic kerb weight

The car limit is:

  • $57,581 for the 2019–20 income tax year
  • $59,136 for the 2020–21 income year.

The instant asset write-off is limited to the business portion of the car limit for the relevant income tax year. For example, the car limit is $57,581 for the 2019–20 income tax year. If you use your vehicle for 75% business use, the total you can claim under the instant asset write-off is 75% of $57,581, which equals $43,186.

You cannot claim the excess cost over the car limit under any other depreciation rules.

If your vehicle is not considered a passenger vehicle, the car limit does not apply. You can claim the cost of the vehicle if it is less than the relevant threshold amount.

Cost of asset exceeds threshold

If you are a small business using the simplified depreciation rules, and the cost of the asset is the same as or more than the relevant instant asset write-off threshold, the asset must be placed into the small business pool.

If you are not using the simplified depreciation rules, you may be able to use the general depreciation rules or use the backing business investment – accelerated depreciation for certain qualifying assets.

Work out your deduction

The entire cost of the asset must be less than the relevant threshold, not including any trade-in amount. Whether the threshold is GST exclusive or inclusive depends on if you’re registered for GST.

To work out the amount you can claim, you must subtract any private use portion. The balance (that is the portion you use to earn assessable income) is generally the taxable purpose portion (business purpose portion). While you can only claim the taxable purpose portion as a deduction, the entire cost of the asset must be less than the relevant threshold.

This also applies to research & development (R&D) use. When you work out the amount you can include in the calculation of your R&D tax offset for your R&D use, you must subtract any non-R&D use including the taxable purpose portion and private use portion.

Later sale or disposal of asset

If you use the instant asset write-off for an asset and then sell or dispose of that asset, you need to include the taxable purpose portion of the amount you received for the asset in your assessable income for that year.

If you use the instant asset write-off for an asset that is later destroyed (for example, in a bushfire or flood) then the amount you receive (such as from an insurance payout) for the destruction of the asset is included in your assessable income.

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Disclaimer

This reading material was extracted from Australian Tax Office (ATO) website on 24 June 2020. This post and the information therein is for general information only and does not constitute legal, financial or taxation advice from PTB. Other requirements under tax law may apply and may change. If you wish to act on any of the material in this video, you should contact PTB for professional advice that takes into account your own specific circumstances.

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