Increasing the instant Asset Write-off

The Government is increasing the instant asset write-off (IAWO) threshold from $30,000 to $150,000 and expanding access to include all businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020.

The higher IAWO threshold provides cash flow benefits for businesses that will be able to immediately deduct purchases of eligible assets each costing less than $150,000. The threshold applies on a per asset basis, so eligible businesses can immediately write-off multiple assets. The IAWO is due to revert to $1,000 for small businesses (turnover less than $10 million) from 1 July 2020.

Example

John owns a company, Just Farming Pty Ltd, through which he operates a farming business. Just Farming Pty Ltd has an aggregated annual turnover of $5 million for the 2019-20 income year. On 1 May 2020, John purchases a second hand tractor for $140,000, exclusive of GST, for use in his business.

Under existing tax arrangements, Just Farming Pty Ltd is not able to immediately deduct assets costing more than $30,000 and instead would depreciate the tractor using an effective life of 12 years. Just Farming Pty Ltd would claim a tax deduction of $3,899 for the 2019-20 income year.

Under the new $150,000 instant asset write-off, Just Farming Pty Ltd would instead claim an immediate deduction of $140,000 for the purchase of the tractor in the 2019-20 income year, $136,101 more than under existing arrangements. At the company tax rate of 27.5 per cent, Just Farming Pty Ltd will pay $37,427.78 less tax in 2019-20.

For more information, email mail@nationaltaxation.com.au

Disclaimer

The information presented is general in nature and not to be used, relied or acted upon without seeking professional advice to ensure that the information appropriate for your individual circumstances. National Taxation accepts no liability for any errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice. www.nationaltaxation.com.au. ABN 63 665 545 130