Comprehensive Guide on Instant Asset Write-Offs

The instant asset write-off is a tax incentive in Australia. It allows eligible businesses to claim an immediate deduction for the cost of certain depreciating assets.

What makes it special is that businesses can write off the cost of assets in the year they are purchased. They don’t have to spread the deduction out over several years through depreciation.

Introduced as a temporary measure in 2020, the instant asset write-off was extended until June 30, 2023.

We’ll cover the key details of the write-off to help you lower your taxable income.

What is the Small Business Instant Asset Write-Off?

The instant asset write-off is actually one out of three tax depreciation incentives provided for by the Australian Taxation Office (ATO).

The three tax depreciation incentives are:

i. temporary full expensing

ii. instant asset write-off

iii. backing business investment

Instant asset write-off is especially applicable to small businesses.

Through the incentive, eligible businesses can claim immediate or accelerated deductions. It specifically applies to the business portion of asset costs, within the year that you first use the asset or install it ready for use.

You can use the deduction for:

- multiple assets (if each costs less than the required threshold)

- both new and second-hand assets

Types of Instant Asset Write-Offs

Two varieties of instant asset write-offs exist. Each applies to different years of tax deductions.

• The first one was the “Instant Asset Write-Off to 11 March 2020. This write-off had an asset cost threshold of $30,000. It applied to eligible assets bought on or after 2nd April 2019. And it was applicable to the income period between 2nd April 2019 and 11th March 2020.

• The second one is the “Instant Asset Write-Off from 12 March 2020.”

This write-off has a higher asset cost threshold of $150,000. It applies to eligible assets bought between 2nd April 2019 and 31st December 2020. And the assets must have been first used or installed between 12th March 2020 and 30th June 2021.

Thereafter, temporary full expensing would apply to assets that you start holding and using or installing from 6th October 2020 to 30th June 2023.

What Assets are Included in the Write-Off?

ATO’s simplified depreciation rules determine the assets that are either included or excluded.

Generally, these rules apply to most forms of depreciating assets.

The assets typically have limited life expectancy and tend to decline in value during use.

They include:

- tools and equipment (e.g. electric sanders and saws)

- laptops, computers, and tablets

- office furniture (mostly freestanding furniture)

- office equipment (e.g. coffee machines)

- motor vehicles (includes cars, vans, or tractors)

Other assets have more complex criteria for inclusion. They include:

- trade-ins

- improvements to assets

- later asset sale or disposal

- assets used for non-business income

- cars

It’s also interesting to note that the written-off asset cost is more than just the purchase price. It includes:

- the purchasing price for the asset

- transport and installation cost

- cost of improvements

Who is Eligible for the Instant Tax Write-Off?

ATO’s simplified depreciation rules determine which businesses are eligible.

Generally, eligibility is based on:

- your aggregated turnover

- when you purchased an asset

- when you first used or installed an asset ready for use

- the asset cost is less than the write-off threshold

- the asset is not eligible for temporary full expensing

Small businesses with the following criteria are eligible:

- your aggregated turnover is less than $500 million

- your aggregated turnover is less than $10 million from 1st July 2016 onwards

- your aggregated turnover is less than $2 million for the previous income years

Note that the aggregated turnover includes any associated businesses.

Eligible businesses are further required to follow these rules:

- use the simplified depreciation rules for deductions for all included depreciating assets

- apply all the simplified depreciation rules – not just the instant asset write-off

- don’t claim deductions for portions of assets used for private purposes

How to Calculate Instant Asset Write-Off

When calculating your instant asset write-off, only consider the proportion of the asset used to earn assessable income.

You cannot claim any deduction for the portion of an asset used for private purposes.

Here’s how to work out your deduction:

i. First, the full asset cost must be less than the applicable threshold (does not include trade-in amounts, and may be GST inclusive if you're not registered for GST).

ii. Subtract any private use portion to get the amount you can claim.

Here’s an example:

You buy a new computer worth $7,000, and use 80% of the time for business. The business use portion that you can claim a deduction on is $5,600 (80% of $7,000). Therefore, you’ll include the amount of $5,600 in your tax return.

There are also other more complex calculations for such cases as changes in business use.

What is the Maximum Instant Asset Write-Off?

The instant asset write-off has thresholds that apply to the cost of your assets. These thresholds vary based on the applicable years and business size. The range of thresholds varies from as much as $150,000 for businesses with less than $500 million aggregated turnover to as little as $1,000 for businesses with less than $2 million aggregated turnover.

The applicable dates range from as far back as 1st July 2011 to as recent as 30th June 2021.

There are also specific yearly limits for car write-offs (applicable to passenger vehicles). The limits range from $57,581 in the 2018–19 financial year to $64,741 in 2022–23.

What is Excluded from the Instant Tax Write-Off?

A few assets are excluded under the simplified depreciation rules.

For these assets, you’ll use the general depreciation rules.

They include:

- assets used in research and development (R&D)

- assets allocated to low-value asset pools before you use the simplified depreciation rules

- software allocated to software development pools (not other software)

- assets leased out longer than 50% of the time, using a depreciating asset lease

- horticultural plants like grapevines

- capital works like buildings and structural improvements

How Do You Claim the Instant Tax Write-Off?

You’ll claim your tax write-offs through your tax return.

Make sure to keep all your purchase documentation to prove your purchases.

Get Professional Tax Advice for Your Tax Write-off

As a business owner, you should take advantage of all available tax deductions and write-offs to minimize your tax liability. However, navigating the complex world of taxes can be challenging. It’s easy to overlook potential deductions or make mistakes that can result in costly penalties and fines.

Professional tax advice from a registered and experienced accountant can help you avoid these pitfalls.

At Cleverly Accounting, our team of qualified and transparent accountants goes the extra mile to review and identify all legal opportunities for tax savings for your business.

In addition to completing and lodging your tax returns, we will work with you to understand your specific business needs and goals.

We’ll provide personalized advice to help you minimize your tax liability.

Our team is committed to providing top-quality service and support, and we are always available to answer any questions you may have.

To learn more about how we can help with your business’s tax needs, call us at (08) 6186 1998 or book an obligation-free 15-minute discovery call.