The recent Budget proposed some significant changes for small businesses. One change that occurred the instant the budget was handed down was an increase in the value of the instant asset write-off from $25,000 to $30,000. Further, the group of businesses who have the ability to claim this write-off was broadened to include businesses that have a turnover limited to $50 million. This change will not only impact how you make your deductions come tax time, but can greatly influence your decision to make that purchase for your business.
There are some common areas of confusion in relation to asset write-offs:
- In order to be eligible, the entire cost of the asset must be less than the instant asset write-off threshold. This value is irrespective of any trade-in This is not to be confused with the taxable purpose portion which is the value that is deducted.
- Whether the threshold is GST exclusive or inclusive will depend on your GST status.
- The deduction is made on an individual item basis, meaning multiple assets can both be deducted regardless of whether the sum of their cost exceeds the threshold.
How can you manage your financing with this deduction?
For Australian small and medium sized business owners, the instant asset write-off is an excellent opportunity to upgrade technology while minimising taxable income. However, rather than placing stress on your cash flow by making large cash outlays on new assets, you could consider financing the asset. The asset loan type and repayments can be tailored to suit each business’ preferred cash flow requirements. Asset loans types such as a chattel mortgage or lease arrangements are commonly used with each option having its own tax and depreciation benefits.
If you have any questions about the process of writing-off these assets or what this can mean for you come tax time, please contact your Morrows tax advisor.
If you have any plans to make small asset purchases and require assistance with sourcing financing, our finance consultants can also assist in determining the best strategy for you.