Using the simplified depreciation rules, assets costing less than the relevant instant asset write-off threshold are written off in the year they are first used, or installed ready-for-use. This threshold applies to each asset irrespective of whether the asset is purchased new or second-hand.
For businesses with a turnover of less than $500 million an instant asset write off of $150,000 is available until 31st December 2020.
The balance of the general small business pool is also immediately deductible if the balance is less than $150,000 at the end of the 2019/20 financial year (including an existing general small business pool).
The instant asset write-off threshold now includes businesses with a turnover from $50 million to less than $500 million. These businesses can claim a deduction for the business portion of each asset that costs less than $150,000 if they are purchased and first used or installed ready for use from 12th March 2020.
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.
Cars
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 only for 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 65% business use, you can only claim $37,427 under the instant asset write-off.
You cannot claim the excess cost over the car limit under any other depreciation rules.
If your vehicle is not considered a passenger vehicle, then the car limit does not apply. You can claim the full cost of the vehicle if it is less than the relevant threshold amount.
GST
If you are registered for the goods and services tax (GST), you exclude the GST amount you paid on the asset when you calculate your depreciation amounts (and your instant asset write-off threshold is exclusive of any GST). This is because you will claim as a credit the GST paid in your activity statement for the relevant period.
If you are not registered for GST, you include the GST amount you paid on the asset in your depreciation calculations (and your instant asset write-off threshold is inclusive of any GST).
Business owners should understand the nature of the benefit involved. They are only getting back the tax rate on the asset, not the full value of the asset. The tax benefit is calculated as the amount you spend multiplied by your tax rate. Thus, $10,000 spent by a 30% rate taxpayer saves $3,000. The business has spent net $7,000. This is the same as the old law where the where the threshold was $1,000 (or $100 for larger businesses). Businesses don’t get any extra cash than they would otherwise have received under the old rules – they simply get it sooner. Getting it sooner however may significantly improve cash flow. Cash flow is one of the main reasons for business failure.
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