How does Instant Asset Write-Off Work?

When it comes to tax deductions and asset write-offs, things can get a little complicated and you'd be excused if you became a little confused as to how it all works. To help you out, we have put together some information in relation to instant asset write-offs and how they work. If you would like further assistance, give our Sunshine Coast Accountants a call (07) 5471 7077 and we would be happy to assist.

*Please note, this guide is broad in nature and may not suit your exact circumstances. Always speak to a professional when it comes to individual and business financial matters before making any decisions.

What is instant asset write-off?

An instant asset write-off relates to claiming a tax deduction for particular assets your business may have purchased for commercial uses.

How does instant asset write-off work?

According to the ATO, under instant asset write-off eligible businesses can:

Write off the cost of each business asset that cost less than the threshold immediately.
Claim a tax deduction for the portion of the purchase cost that relates to the business in the year the asset is either first used or installed and ready for use.

Who is an eligible business?

There are a few different factors to consider when it comes to eligibility for instant asset write-offs:

Turnover: The aggregate turnover of your business ie. the total ordinary income of your business and that of any associated businesses
Date: When the asset was purchased and when it was used for the first time or installed ready to be used.
Cost: The cost of the asset and whether it falls above or below the threshold.

The criteria when it comes to eligibility have changed over time, so always check if your business is eligible.

It is worth noting that from 1 July 2020, small businesses with a turnover of less than $10 million will be the only ones who are eligible for instant asset write-offs and the threshold amount will be $1,000.

Businesses with a turnover of $500 million+ are not eligible to use instant asset write-off.

What is the threshold?

The instant asset write-off threshold changes depending on the financial year. The following table is provided by the ATO in relation to the thresholds since 2012:

Courtesy of the ATO Instant Asset Write-Off website.

What assets does instant asset write-off apply too?

Instant asset write-off can be utilised for both new and second-hand assets, as long as they are under the relevant threshold, however, there are some exclusions and limits that may apply.

What exclusions apply?

There are a small amount of assets that can not be immediately written off. These include:

Leased Out: Assets that are leased out, or expected to be leased out, for more than 50% of the time on a depreciating asset lease.
Low Value Assets: Assets allocated to a low-value assets (pool) before using the simplified depreciation rules.
Plants: Horticultural plants including grapevines.
Software: Software allocated to a software development pool (but not other software).
Capital Works: Capital works deductions.

The general depreciation rules apply to these assets - head to the ATO website for more information.

How do you calculate a deduction?

A few points to remember when it comes to calculating deductions:

You can claim deductions for more than one asset, as long as the cost of each individually is less than the relevant threshold.
The whole cost of the asset must be less than the relevant threshold (not including any trade-in amount).
Whether the threshold amount is GST exclusive or GST inclusive depends on if your business registered for GST or not.

To calculate the amount claimable, you must remove any portion that you used the asset privately. The balance (that is the portion you use to earn assessable income/used for your business) is generally the taxable purpose portion or the business purpose portion.

Note: While you can only claim the taxable purpose portion as a deduction, the entire cost of the asset must be lower than the applicable threshold.

If you would like some help when it comes to instant asset write-offs, give our Sunshine Coast Accountants a call (07) 5471 7077 and we would be happy to assist.

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