In addition to the changes made to the instant asset write off threshold from $30,000 to $150,000 on 24 March 2020 by the Federal Government as a stimulus and tax-relief response to COVID 19, the 2021 budget went a step further and removed any write-off thresholds. It now allows for the full expensing in the first year of use for new depreciable assets and cost of improvements to existing eligible assets. Suitable Loans has Asset Finance solutions that can help you make a full deduction under the IAWO scheme. This can reduce taxable income and provide tax savings.
For example, a farmer purchases a new tractor for $140,000 to use as part of his business. Under the normal tax arrangements, the business is not able to immediately deduct assets costing more than $30,000. The tractor would be depreciated over its effective life of 12 years. Under the diminishing value depreciation method, the business would claim a tax deduction of $3,899 for the 2019-20 income year.
Under the new instant asset write-off rules, the business will be able to deduct the full cost of the tractor. This will reduce their taxable income by $140,000. At a company tax rate of 30 per cent, the business can save $38,101 in tax. This incentive will help encourage business spending and economic growth. It will also provide support to businesses and help them thrive as they get back on track after the coronavirus.
Is your business eligible?
It most likely is! Treasurer Josh Frydenberg says that 99% of businesses are covered by the IAWO. All businesses with an annual turnover of less than $5 billion are eligible to claim a full tax deduction for the asset’s costs if acquired from 7.30pm AEDT on 6 October 2020 and first used or installed by 30 June 2022. This means that support is available to you whether you are a small, medium or large business. The instant asset write-off is a great way for businesses to buy their assets sooner and take advantage of tax benefits. Talk to your accountant for specific information on how your business can benefit.
What assets can you write-off?
There is no threshold for what you can claim. Eligible businesses can write-off the full cost of any new depreciable asset purchased. The deduction can be claimed in the tax year that the asset was first used or installed. For second-hand assets, businesses with an annual turnover of less than $50 million can claim the full cost. Businesses with an annual turnover between $50-500 million, can claim second-hand assets costing less than $150,000.
Talk to a Suitable Loans Asset Finance broker.