Have you just invested in new equipment for your business, perhaps an espresso machine for your café or an excavator for your construction company?
While necessary to help your business thrive, these investments are significant.
What if you could claim an immediate deduction for them and keep more cash in your pocket? Welcome to the world of instant asset write-offs.
What is instant asset write-off, and how can this tax trick help you supercharge your savings?
What Is Instant Asset Write-Off?
Instant asset write-offs allow businesses to immediately deduct the full cost of eligible assets purchased and used in the same financial year rather than depreciating them over several years.
This deduction reduces your taxable income and, in turn, lowers your tax bill and keeps more money in your business.
The ATO sets a threshold on instant asset write-offs, that is, the maximum cost that a business can immediately deduct for a single asset purchase in the same financial year.
The Australian Government has increased the instant asset write-off threshold from $1,000 to $20,000 for the 2023-24 and 2024-25 financial years.
The $20,000 threshold applies per asset, so your business can instantly write off multiple assets.
Write-Off Eligibility: Do You Qualify?
Your business must meet specific criteria to qualify for instant asset write-offs.
- Your business must have an aggregated turnover of less than $10 million.
- The asset must cost less than $20,000 for the financial years 2023-24 and 2024-25.
- The asset must be purchased and used or installed ready for use within the same financial year you claim the deduction.
Businesses that benefit the most from instant tax write-offs are those that frequently invest in new equipment, technology, and tools, such as retail, hospitality, construction, and professional service businesses.
Eligible Assets: Your Cheat Sheet
Assets must be tangible, depreciable, and used entirely or primarily for business purposes to qualify for instant tax write-off.
These can include
- Machinery and equipment: Industrial machinery, construction equipment, and manufacturing tools
- Trade tools: Power tools, workshop equipment, and landscaping tools
- Office equipment: Computers, laptops, printers, and scanners
- Furniture and fittings: Desks, chairs, shelving units, and office partitions
- Vehicles: Cars, vans, trucks, and utes
There are special considerations for assets in specific industries, such as
- Construction: Excavators, bulldozers, and portable cement mixers
- Hospitality: Ovens, refrigerators, coffee machines, and other commercial kitchen equipment
- Retail: Point-of-sale (POS) systems, display racks, and lighting fixtures
What assets don’t qualify?
-
- Leased assets (leased out for more than 50% of the time on a depreciating lease)
- Trading stock
- Buildings and construction and renovation projects
- Assets allocated to a low-value asset pool
- Software allocated to a software development pool
- Assets for research and development (R&D) activities
- Horticultural plants (including grapevines)
Claiming Your Write-Off: A Simple Guide
You can claim an instant asset write-off in the same financial year the asset was purchased and first used or installed ready for use.
How do you claim? Follow these steps:
- Keep detailed records of the purchase, including receipts and invoices.
- Update your accounting software or records to include the asset and its cost.
- When completing your business tax return, include the asset’s cost in the “Depreciation expenses” section and apply the write-off to reduce your taxable income.
- Submit your completed tax return to the ATO by October 31 (unless you have a registered tax agent, in which case you may qualify for an extended deadline to May 15 of the following year.)
After you claim an instant asset write-off, your taxable income will be reduced by the cost of the asset, resulting in a lower tax bill.
Instant Asset Write-Off Example
Rebecca purchased a new espresso machine for her café for $2,500, delivered and ready for use on May 6, 2024.
As the espresso machine’s cost was under the relevant threshold ($20,000) and Rebecca only uses it for her business, she can instantly write off its full cost as a deduction in her 2023–24 income year tax return.
Beyond Write-Offs: Other Smart Tax Strategies
Combining instant asset write-offs with other tax deductions and incentives can help maximise your business’ savings.
- Simplified depreciation rules: Assets valued at $20,000 or more can be pooled and depreciated at 15% in the first year and 30% in subsequent years. Additionally, you can write off pool balances under $20,000 at the end of the 2023–24 financial year.
- Low-value pool: Allocate assets costing less than $1,000 to a low-value pool to streamline depreciation.
- Research and Development (R&D) tax incentive: Claim a tax offset for certain R&D activities if you invest in innovation to reduce your tax liability.
- Small business income tax offset: Sole traders, partnerships, and other small businesses can claim a tax offset of up to $1,000.
- Loss carry-back tax offset: Eligible companies can carry back tax losses to offset previously taxed profits, resulting in a refundable tax offset.
Try also implementing these tax planning strategies:
- Plan major purchases strategically to take advantage of the instant asset write-off and other deductions.
- Keep detailed records and documentation for all claims to avoid issues during an ATO audit.
- Regularly check updates from the ATO to stay informed about any changes in tax laws and regulations.
- Seek advice from tax professionals like those at Pherrus to navigate complex tax situations and compliance.
Ready To Maximise Your Tax Savings? Let Pherrus Help!
What is instant asset write-off? It’s a way to reduce your tax bill, freeing up cash flow and boosting your business.
Your business can’t afford to miss out on the benefits of instant asset write-offs.
Here at Pherrus, our expert tax consultants can guide you on making the most of these for the biggest savings.
They’re up to date with the latest tax rules and regulations, so you can rest assured knowing your taxes are compliant as well as optimised.
We can also integrate asset protection strategies into your business’s financial plan.
Fill out our online form today or call (02) 9099 9109 to book an appointment with one of our tax consultants at our Bella Vista office in Sydney, NSW.
