On 9 June, the government announced that the $150,000 instant asset write-off would be extended from a planned finished date of 30 June 2020 until 31 December 2020.
Under these rules, eligible taxpayers get a 100% tax deduction for asset purchases with a value of less than $150,000. To be eligible you must:
- be a business with a turnover of $500 million or less;
- purchase a depreciable asset (new or used) with a value of less than $150,000; and
- have that asset installed or ready for use in your business by 31 December 2020.
Samantha owns a company, through which she operates a large food processing business. The company has an annual turnover of $150 million. On 1 August 2020, Samantha purchases five new conveyor belts for her production facility for $40,000 each for use in her business ($200,000 in total).
Under normal tax arrangements, the company is not eligible for the instant asset write-off and instead would depreciate the conveyor belts over 15 years. Under normal rules, the company would claim a total tax deduction of $24,444 for the 2020-21 income year. Under the extended $150,000 instant asset write-off, the company will instead claim an immediate deduction of $200,000 for the purchase of the conveyor belts (i.e. $40,000 for each conveyor) in the 2020-21 income year, $175,556 more than otherwise available. At the company tax rate of 30 per cent, Samantha will pay $52,667 less tax in 2020-21.
Tips and Traps
- More than one asset can be purchased (e.g. You could purchase 3 trucks for $120,000 each and claim a total deduction of $360,000);
- Cars are still subject to the depreciable car limit for a deduction (eg. No more than $57,581 tax depreciation can ever be claimed for any car, even if the cost is higher than that);
Some purchases are not eligible (i.e. building and capital works items such as a new roof, or a shed and also some software is ineligible);
- The deduction falls in the year in which the asset is installed or ready for use in the business (e.g. If you order on 10 June 2020 but do not receive the asset until 2 July 2020, you will not get the tax deduction until your 2021 tax return); and
- The tax deduction is not the saving amount! If you purchase a tractor for $100,000 you will get a $100,000 tax deduction. But your tax saving on that purchase, assuming a 30% tax rate is $30,000, so the tractor will still cost you $70,000. Nobody has a 100% tax rate, so all expenditure is still going to have a cost (some taxpayers have misunderstood the 100% deduction part of the scheme to mean that a purchase will not cost them any money at all, when in fact it will).
We encourage you to check with your Hoffman Kelly accountant to ensure you get the benefits you think you will before you commit to major capital expenditure!