ATO's new asset write-off: Instant benefits for small businesses

Did you know about the Government’s instant asset write off scheme for small business? If so, did you know the threshold has been increased to $30,000?

If you haven’t heard of it, don’t worry - firstly, you’re not alone (according to a survey by American Express(1) late last year, under half (47%) of businesses had actually heard of the scheme) and secondly we’re about to help you put that right. It’s certainly something you’ll want to know about, so read on…

What’s the benefit to my business?

The instant asset write off scheme offers small businesses the opportunity to free up cash flow by writing off assets in a single tax year. It simplifies depreciation rules and allows you to claim full business value of the purchased asset in a single tax return, and claim your rebate as a single sum, without having to spread it over a number of years. You get eligible cash back quicker, so you can reinvest it in growing your business.

What is a small business?

To qualify as a small business, you need to have a turnover of up to $50 million per annum.

How does it work?

The scheme applies to business assets purchased for up to $30,000 in the current tax year. If you purchase equipment that you use to operate your business, you can claim a deduction for the business portion of that asset in your tax return.

You can claim multiple purchases, as long as each one is under the $30,000 threshold and the assets were purchased and installed and ready for use between 2nd April and 30th June. The items can be purchased new or second hand.

If your business has a turnover of less than $10 million per annum, the asset value thresholds vary by the date the asset was purchased and first used (or installed and ready for use):

• $30,000 for assets purchased between 2nd April 2019 and 30 June 2020
• $25,000, for purchases between 29 January and 2 April 2019
• $20,000, for assets purchased before 29th January.

The current tax year is, of course, uppermost in most people’s minds at the moment, but as well as increasing the threshold to $30,000, the ATO has extended the scheme up to 30th June 2020, so purchases in 2019-20 can be treated in the same way.

What is the ‘business value’ of the asset?

If you buy an asset that is not used exclusively for work, then its business value is the total value multiplied by the percentage of time it is used for business. However, you should be aware that the $30,000 threshold applies to the full value, not the business value. This means that to be eligible, the total cost of the asset must still be under $30,000, but your claim will be for the business value.

What about a practical example?

You are a café and catering business with a turnover of$2 million a year. You spend $8000 on new POS hardware for your café, plus kitchen machinery worth $15,000 and a new business vehicle for $35,000. The vehicle is used 60% of the time for deliveries and 40% of the time for personal use. All were purchased between 2nd April and 30th June 2019.

You have two eligible items to claim in against your 2018-19 tax. The POS hardware is one, the kitchen equipment is another. Although the business value of the vehicle is $21,000 (60% of $35,000), its full value is over the threshold and therefore not valid for the scheme. It will be depreciated through the small business pool or the general depreciation rules.

The bottom line

The Government has clearly stated its commitment to small business and this scheme is a practical way of demonstrating that commitment. It simplifies the depreciation process, making it simpler to understand and use. It helps to address the perennial small business issue of cash flow – freeing up resources to invest back into your businesses and generate growth. So if you think that this scheme could benefit your hospitality business, pick up the phone and get talking to your accountant for some detailed advice.