Instant Asset Write-Off & How It Can Benefit Your Business

instant asset write off

The current COVID-19 situation has created an unpredictable business environment and is impacting small businesses in many different ways. While some businesses have been booming, others have been hit hard by the impacts of self-isolation and social distancing. In an effort to address the impacts of the COVID-19 virus, the Federal Government has announced a stimulus package worth nearly $18 billion. Australian businesses will be the biggest beneficiaries of this package in an effort to boost the economy.

As part of this package, the threshold for the Instant Asset Write-Off (IAWO) has been increased from $30,000 to a whopping $150,000 and expanded to include businesses with an aggregated annual turnover of less than $500 million (up from $50 million).

What is an Instant Asset Write Off?

An instant asset write-off allows businesses to claim immediate deductions for new or second-hand equipment asset purchases. The increased IAWO threshold provides cash flow benefits for businesses through immediate deduction of assets costing less than $500,000 that were purchased in the 2019-20 income year. The threshold applies on a per asset basis, so eligible businesses can immediately write-off multiple assets.

Who is Eligible?

The Government is expanding access so that more businesses can take advantage of the IAWO. The annual turnover threshold for businesses is increasing from $50 million to $500 million. Expanding the threshold will mean an additional 5,300 businesses who employ around 1.9 million Australians will be able to access the IAWO for the first time.

When Can I Get It?

This proposal applies from 12 March 2020 until 30 June 2020, for new or second-hand assets first used or installed ready for use in this timeframe.

If you have been looking to purchase a new vehicle for your business, this incentive could help you make this purchase and also increase cash flow to help you to withstand and recover from the economic impacts of COVID-19.

Example of How the Instant Asset Write-Off Can Benefit Small Businesses

John owns a business, John’s Gourmet Meats, which he operates in Brisbane. John’s Gourmet Meats has an aggregated annual turnover of $400,000 for the 2019-20 income year. On 1 May 2020, John purchases a refrigerated truck for $40,000, exclusive of GST, to use for his business.

Under previously existing tax arrangements, John’s Gourmet Meats is not to immediately deduct assets costing more than $30,000 and instead would depreciate the refrigerated truck using an effective life of 8 years. Choosing to use the diminishing value method, John’s Gourmet Meats would claim a tax deduction of $5,000 for the 2019-20 income year.

Under the new $150,000 instant asset write-off John’s Gourmet Meats would instead claim an immediate deduction of $40,000 for the purchase of the refrigerated truck in the 2019-20 income year, $35,000 more than under previous arrangements.