Instant Asset Write-off – Plan Smart in 2020

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Budget 2020 Update – 6 October 2020

INSTANT ASSET WRITE-OFF EXTENDED – From 7.30pm 6 October 2020 until June 2022, a temporary tax incentive will be available to businesses with up to $5 billion in annual turnover. It will allow them to claim an immediate deduction of the full value of all new, eligible, depreciable assets of any value that are first used or installed before June 30, 2022.

Businesses will also be able to claim full deductions for the cost of improvements made to existing depreciable assets.

At the same time, SMEs with up to $50 million in annual revenue will be able to apply “full expensing” to all secondhand assets.

Businesses with between $50 million and $500 million in annual revenue will be able to claim a full deduction for  secondhand assets of up to $150,000 in value under the existing instant asset write-off scheme if they are purchased by December 31, 2020.

The government has also added another six months to the current instant asset write-off scheme (see below) to allow businesses that already hold eligible assets to first use or install those assets. The extension for these businesses will end on June 30, 2021.

What is an instant asset write-off?

An instant asset write-off allows eligible businesses (with an annual turnover of less than $5 billion) to claim immediate deductions on eligible assets. In your case this would relate to any new packaging machines purchased from Packserv Manufacturing. The assets must first be used, or installed for use, in the income year you’re claiming for.

The amount you can write-off will depend on when the asset was purchased, installed and the associated threshold amount (if applicable). Thresholds and eligible turnovers have changed over time and we would recommend that you check the ATO website for details.

What type of equipment purchases should I consider making?

Before making any large machine purchases from us, we suggest you speak to your accountant or tax professional and assess how the asset will benefit your business and how the purchase may impact on your cash flow or finances in the short term.

If you decide to take advantage of the instant asset write-off, you should make the decision based on the needs of your business. For example, if you need to purchase a packaging machine to increase productivity and output according to growing demand, or because it is in line with your business plan.

How do I claim the instant asset write-off?

If you buy an asset, you can claim the business portion of the asset’s use in your tax return for that financial year.

You can claim a deduction for multiple assets as long as the cost of each individual asset is less than the relevant threshold.

The ATO website provides examples of how to work out your instant asset write-off.

TIP: If your business is structured as a partnership there’s no double-dipping allowed. Under the instant asset write-off, purchases are considered as being owned by the partnership and not by individual partners. If a partner buys an asset such as a motor vehicle in their own name, the asset won’t be eligible for the write-off as part of the partnership, and if the partner does not qualify as a small business taxpayer personally, they will not be eligible for the write-off.

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