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.
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.
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