Using the Instant Asset Write Off

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 small businesses (turnover of less than $10 million) there are three instant asset write-off thresholds that apply in 2018/2019 as follows:

• from 7.30pm (AEDT) on 2 April 2019 until 30 June 2020, if the asset costs less than $30,000 each
• from 29 January 2019 and before 7.30pm (AEDT) 2 April 2019, if the asset costs less than $25,000 each
• before 29 January 2019, if the asset costs less than $20,000 each.

The balance of the general small business pool is also immediately deductible if the balance is less than $30,000 at the end of an income year that ends on or after 2 April 2019 and on or before 30 June 2020 (including an existing general small business pool). 

The instant asset write-off threshold now includes businesses with a turnover from $10 million to less than $50 million. These businesses can claim a deduction for the business portion of each asset that costs less than $30,000 if they are purchased and first used or installed ready for use from 7.30pm (AEDT) on 2 April 2019.

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.

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 small business failure. 

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