$20,000 Instant Asset Write-off - CapitalQ

$20,000 Instant Asset Write-off


BREAKING NEWS (As of 12 September 2018)!!!

The $20,000 Instant Asset Write-off has FINALLY been passed by the Senate and will become law for the 2019 year.  Watch our video and read all the benefits of the Write-off below …

(The Government’s Media Release regarding the Senate’s decision can be read http://jaf.ministers.treasury.gov.au/media-release/006-2018/.

Our Blog post on the topic can also be accessed here https://capitalq.com.au/news/20000_instant_asset_write_off/

Video transcript …

Hi Folks, Duncan here once again from CapitalQ

Today, I will be briefly discuss the $20,000 Instant Asset Write-Off otherwise known as the $20,000 Small Business Tax Break.


So the first thing I must mention, is that as at today, being August 2018, the extension of the $20,000 Instant Asset Write-off for the current tax year is unfortunately still not law!

Now I think it is fair to say everyone expects it will eventually be passed by the Government, but given everything going on in Australian politics at present you should be aware until it is actually passed into law, there is always a chance something could change.

But having said that, working on the basis the extension for this year is passed as expected, here are the key things you need to know about it …


Why does it exist?

In short, the Government is looking to achieve three things with this small business incentive.

One, they are encouraging Australian small business to spend and therefore help maintain economic activity,

Two, they are encouraging Australian small business to invest in, and therefore hopefully expand and grow, their businesses, and

Three, they are of course attempting to provide some tax relief to small businesses who are owned and operated by people who vote!


So what is the benefit to your business?

Well simply put, under the normal tax depreciation rules, equipment you buy that costs more than $1,000 but less than $20,000 would normally have to be claimed for tax purposes over a period of several years.

But instead under this rule, those equipment items can be claimed for tax purposes in full, upfront.

We estimate that the short term cash flow improvement to a small business from this rule can be as much as around $8,000.

So that’s not too bad at all.


How do you qualify?

There are three main criteria –

One – Your business must qualify as a “Small Business Entity”

Now there are obviously tests that need to be applied to meet this criteria, but in general, if your business’ turnover is below $10 million, you are most likely in.

Two – You must have incurred expenditure on an Eligible depreciable asset during the year that cost less than $20,000

And Three – The Eligible Asset must be used, or installed ready for use, within the business on or before 30 June 2019


Ok, so what are the Tricks and Traps

As with pretty much everything in Australian Tax, things are never as simple as you might hope.

Even with just three criteria to pass, within each of those criteria, there are various things you need to be aware of to avoid getting tripped up.

But probably the key things that are the most common traps are as follows –

One – The turnover test applies to all the businesses you own.  So if you do own more than one, you must combine the turnover of all of them when applying the test.

Two – Incidental costs of acquiring the item are included in its cost for the purposes of the write-off.  So this means costs like

  • Delivery
  • Installation
  • Duty

are all included in the cost and you must ensure they don’t tip you over the $20,000 threshold.

Three – The cost of an item excludes any GST you can claim back from the ATO.

So, you can actually buy a piece of equipment costing all the way up to $21,999 and so long as the cost includes a full 1/11th of GST, the cost for the purposes of the write-off will be $19,999 if you can claim all that GST back from the ATO.

Having said that, the most common thing small business owners want to claim the write-off for is cars!  Well most of the time, what you pay for a car doesn’t include a full 1/11th of GST (due to licencing and stamp duty).  So you must be extra careful to confirm how much GST is included in the cost and make sure you still get under the $20,000!

Ok, so there is a high level overview of the $20,000 Instant Asset Write-off.


We have a more detailed Blog on the topic on our website, so you can check that out at capitalq.com.au.

But of course there is always even more to know and consider, so if you are hoping to purchase some equipment for your business and use the write-off please do get in touch, let us know and we will confirm for you your eligibility and help you get it right.


One very last thing before I go

Despite all the apparent benefits of the instant asset write-off, please please please don’t just go and buy things you don’t need in order to qualify.

You will still be out of pocket, even after the tax savings, and such a strategy is a complete false economy.

I will confess to be quite disappointed with the number of people who ring and ask “should I buy a car to save tax”.

The answer is very clearly “unless you really need a new car, then no”.

But the question does indicate a lack of understanding of how the tax system effects them, a lack of understanding of good business practices, and is a poor reflection on the impact of Government initiatives and corporate advertising which create this misconceptions.

So always remember, don’t just incur an additional cost just to receive a tax deduction, because you rarely come out in front!

Anyway, enough of that, will see you next time.

Bye for now!

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