Tax Return:: What is the Instant Asset Write-off?
Hello, this is your tax and super specialist, P&C Tax Professionals.
You may have come across the term “instant asset write-off” perhaps while perusing through some of the news articles online. When it comes to the instant asset write-off, there is a certain criteria and specific thresholds which will help you determine whether or not you would be eligible for it. So, let’s get right into it!
<What Exactly is the Instant Asset Write-off?>
The instant asset write-off refers to an immediate deduction for the business use percentage of the cost of a particular asset for small business owners. The deduction must occur in the same year the asset was first used or installed for use.
Instant asset-write off can be applied to:
> Multiple assets (as long as the cost of each individual asset is less than the specified relevant threshold)
> Both new and second-hand assets
The eligibility criteria for the instant asset write-off and the corresponding threshold have experienced continuous adjustments over time. Therefore, you must ensure that you keep up to date with the eligibility criteria and the threshold as they change.
<Temporary Tax Depreciation Incentives>
As of now, there exists three temporary tax depreciation incentives for businesses that are eligible:
1. Temporary full expensing
2. Increased instant asset write-off
3. Backing business investment
From 6th October 2020 to 30 June 2023, the instant asset write-off would not apply to the assets you begin to hold, and first use (or have installed for use) for a taxable purpose. Instead, you are required to immediately deduct the business use percentage of the asset’s cost under ‘temporary full expensing’. According to the 2020-21 Federal Budget, the temporary full expensing incentive is only available till 30 June 2023.
If the business is not eligible for the temporary full expensing, you can still claim the depreciation deduction for such assets under the instant asset write-off if for instance, the asset was:
> Purchased by 31 December 2020, AND
> Either first used or installed for use before 30 June 2021.
For the 2020 and 2021 financial years, businesses that are eligible can deduct the cost of their newly purchased and installed depreciating assets via the ‘backing business investment – accelerated depreciation rules.
<Eligibility>
Your eligibility to apply the instant asset write-off on your assets depends on the following criteria:
> your aggregated turnover (this basically refers to the total ordinary income of the business you are running)
> the date you have acquired the asset
> when the asset was initially used or installed in order to get it ready for use
> the cost of the asset not exceeding the threshold (the cost of the asset must be below $150,000)
If your aggregated turnover is calculated to be $500 million or more, you would not be eligible to apply the instant asset write-off on the assets you have acquired for your business.
If you are applying the temporary full expensing to the asset, the instant asset write-off should not be applied to the asset.
<Thresholds>
At the time of writing this blog post, the thresholds that are in place for the instant asset write-off are as shown below.
<Exclusions and Limits>
When it comes to exclusions and limits of the instant asset write-off, there exists a car limit which applies to the cost of passenger vehicles (except a motorcycle or a similar vehicle). Here, passenger vehicles are considered to be motor vehicles that are structured to carry a load less than one tonne and fewer than 9 passengers. In other words, the one tonne capacity represents the maximum load that your vehicle can hold.
The car limit is set as follows:
> $59,136 for the 2020-21 financial year
> $60,733 for the 2021-22 financial year.
The car limit generally does not apply to vehicles that are modified or adjusted for use by people who have a disability. Moreover, it is important to note that you cannot claim the excess cost over the car limit under any of the other depreciation rules that are available.
The instant asset write-off is strictly limited to the business use percentage of the car limit for the relevant financial year. For instance, let’s say that the car limit is $60,733 for the 2021-22 income tax year. If you are using your vehicle for 65% business use, the total depreciation expense you can claim under the instant asset write-off is 65% of $60,733, which calculates to $39,476.45.
For the full list of assets that are excluded from the simplified depreciation rules, please refer to the ATO link provided below.
Let’s finish off here but if you have any burning questions, please feel free to contact us through our Official Facebook Page (P&C Tax Professionals – Australia) or simply direct them to our email address at: pnctax@naver.com.
Thank you and bye for now!
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