One of the best tax breaks for small business is the instant asset write-off, which is a great way for business owners to acquire capital assets required for their business, and at the same time, getting a well needed tax break.
Small and medium sized businesses with a turnover of less than $50 million can claim an immediate tax deduction for “individual” assets costing less than $30,000 (GST exclusive).
The immediate write-off only applies to assets are used, or installed ready for use, in your business by 30 June 2020.
Examples of tax-deductible items
Some of the items that you could look at purchasing before 30 June 2020 include:
- Cash registers and other POS devices
- Cars, vans and utes
- Fittings and fixtures
- Plant and machinery
- Computers and laptops
- Security systems
Key Tips
To ensure compliance with the tax rules, here are some key tips:
- You have to be in business to claim the instant asset write-off – having an ABN is not enough.
- Understand that this tax break is not a cash hand-out but a deduction that reduces your taxable profit. If you operate as a company and spend say $25,000 on a capital purchase (net of GST), the company will receive a 27.5% deduction which equates to a $6,875 reduction in tax. This means that the company will still have a net cash outlay of $18,125 on this purchase.
- The $30,000 limit is worked out on a GST exclusive. This means that if your business is registered for GST and claims an input tax credit on the purchase, the tax deduction is worked out on the GST exclusive price.
- Your business may purchase and claim a deduction for each asset that costs less than the $30,000 threshold. For example, in the same financial year a business may purchase a new van worth $22,000 and then purchase a trailer at a cost of $14,000. The business can claim both of these as each of the assets are under the $30,000 threshold.
- The asset must be used, or installed ready for use by 30 June. This is particularly important if you purchase the asset just before the end of the financial year. If the item is purchased say on 29 June 2020, but not available for use in the business until 7 July 2020, the deduction is deferred until the 2020/21 financial year.
- Both new and second-hand assets qualify.
- Don’t forget to pro-rate the deduction for private use – to claim the full deduction, the asset has to be used solely for business purposes. If you operate as a sole trader or in a partnership and there has been some personal use of the asset, the deduction needs to be pro-rated to reflect this. The deduction is not pro-rated where you operate as a company or a family trust, but fringe benefits tax (FBT) may apply to the private use of the asset by employees (FBT on company cars is a common example).
Disclaimer
This information is provided as a guide only and is not intended to constitute advice whether legal or professional. You should obtain appropriate advice concerning your particular circumstances.
