Instant Asset Write Off
Businesses with aggregated turnover of less than $5 billion will be able to claim an immediate deduction for the full cost of an eligible depreciable asset, in the year the asset is first used or is installed ready for use, where the following requirements are satisfied:
- The asset was acquired from 7:30pm AEDT on 6 October 2020 (i.e., Budget night).
- The asset was first used or installed ready for use by 30 June 2022.
- For most businesses (aggregated turnover of less than $50m) this applies to a new or used acquisitions.
Tim Mason of Atodaka points out that the write off applies to eligible depreciable assets only and has found taxpayers to be unaware of exactly what an eligible depreciable asset is.
Arjun Ganesh advises an eligible depreciable asset is an asset that has an effective life and can be reasonably expected to decline in value over the time it is used. Examples of depreciable assets are tools and equipment, computers, laptops and tablets, office furniture and motor vehicles.
Capital works are not depreciable assets. Capital works are buildings, renovations, and structural improvements etc. So, for example a shed would not be an immediate write off. There are other assets that are also excluded, although are less common. These include horticultural plants including grapevines, software allocated to software development pool, assets used in your research and development activities.
Under these provisions, it is important that taxpayers realise that once the asset has been written off for tax purposes then if they sell this asset the proceeds of that sale are going to be taxable.
In conclusion, the immediate write off provides a tax benefit for businesses. If a business needs a new machine and, for example that machine costs $100,000. The business is going to save $26,000 in tax that year. However, in saying this the business should consider the need for such equipment even though they have saved tax they are still spending money, and ultimately the decision to buy the equipment should be made after careful cost benefit analysis, i.e. what income can be produced from the expenditure?
Contact Arjun Ganesh or Tim Mason at Atodaka if you would like to know more or need assistance with tax planning, capital expenditure analysis or report preparation for finance applications