Changes to the instant asset write-off threshold.
The instant asset write-off scheme allows eligible businesses to instantly write off the cost of individual assets, provided the amount comes in under the threshold.
Under the scheme, it also allows businesses to claim a tax deduction for the business segment of the purchase price in the year the asset is first used or installed.
As part of the Australian Government’s economic response to COVID-19, the ATO has introduced a temporary increase in the instant asset write-off threshold for eligible businesses.
As of 12th March 2020, the instant asset write-off threshold has been increased from $30,000 to $150,000 to allow businesses to immediately deduct purchases of eligible assets. The threshold has also been broadened to encompass businesses with an aggregated turnover of less than $500 million – an increase from the previous cap of $50 million.
The threshold applies per asset, so businesses can write-off multiple assets. Eligibility depends on aggregated turnover, asset purchase date and cost of each asset.
This increase will end as of the 30th June 2020, and will then only be available to small businesses with a turnover of less than $10 million and an asset threshold of $1,000.
Is my business eligible for the instant asset write-off?
There are 3 criteria that determine a business’ eligibility for the instant asset write-off scheme. These include:
- The aggregated turnover of the business and any associated businesses
- The date when you purchased the asset for your business and when it was first used or installed for use
- The total cost of the individual asset coming in under the relevant threshold
What is excluded from the instant asset write-off?
There are a number of assets that are excluded from the instant asset write-off scheme. These assets must use the general depreciation rules and cannot be included.
- Any assets that have been or are expected to be leased out for more than 50% of the time on a depreciating asset lease
- Any assets that have been allocated to low-value assets (pool) prior to using the simplified depreciation rules
- Any horticultural plants
- Any software apportioned to a software development pool
- Any capital works deductions
In addition to these exclusions, the purchase of a car is limited to the business portion of use, with a limit of $57,581 for the 2019-20 income tax year under the instant asset write-off scheme.
Learn more about the car cost limit for depreciation here.
What happens if the cost of the asset is greater than the threshold?
For small businesses using the simplified depreciation method where the cost of an asset meets or exceeds the threshold, the asset must then be placed into the small business pool.
If you’re not using the simplified depreciation method and the cost of an asset meets or exceeds the threshold, you are required to use the general depreciation method.
In some cases, assets that exceed the threshold may be able to use the accelerated depreciation method. Learn more here.
How do I work out my deduction for the instant asset write-off?
When calculating the amount you can claim on relevant assets, you must subtract any private use portion. The balance here is generally the taxable purpose portion (business portion).
Despite only being able to claim the taxable purpose portion, the entire cost of the asset must still be below the relevant threshold.
Eligible businesses can claim depreciation for a number of assets provided each asset sits below the relevant threshold and doesn’t include trade-in amounts. The threshold may also be inclusive or exclusive of GST; this depends on whether you’re registered for GST.
Interested in learning more about your rights and obligations under the instant asset write-off scheme? We’re here to help make things simple. Chat with our team today to understand exactly what you can and can’t claim.