How to claim all new vehicles, machinery or equipment back on tax
When it comes to Federal Budget measures that benefit SMEs, few have proven as popular as the instant asset write-off.
While the measure previously existed in a weaker form, with businesses allowed to claim assets up to $1000, it was 2015 when the $20,000 threshold was introduced.
That meant that SMEs could claim depreciating assets like computers, vehicles and machinery and be reimbursed in their tax return. The measure was so popular, it was extended for a further 12 months which means businesses have until the end of this financial year to take advantage of the instant asset write-off.
What is the instant asset write-off?
Any business with a turnover of less than $10 million is able to write off depreciating assets under the scheme. This can be one single item that costs less than $20,000 or a series of items that collectively add up to that amount.
There are conditions, the main one being that the assets must be used for income-producing purposes in the business and the write offs are heavily scrutinised by the ATO to prevent rorting.
The assets must be purchased and installed or ready for use within that financial year, or they will be counted in the next financial year if they have been ordered but are not installed or operational.
New and second hand assets can be counted under this measure and standard private use laws are relevant, meaning the asset has to be 100 percent for work purposes to count against the instant asset write-off.
What can you purchase under the scheme?
The rules are relatively relaxed in claiming the instant asset write-off, although you have to be able to prove that the asset is for income producing purposes for your business.
These don't have to be physical items either, with many businesses writing off depreciable assets like websites, online shopping facilities or software that give businesses an ongoing benefit.
Australian Small Business and Family Enterprise Ombudsman Kate Carnell has called for the $20,000 threshold to be lifted even higher, as it currently excludes some enterprises in the agriculture sector from taking advantage.
"For some industries, like farming, the $20,000 threshold is too low to enable them to purchase equipment," Ms Carnell said.
How long do I have?
At present, the current form of the instant asset write-off is set to expire at the end of this financial year. If it is not extended in the Budget announcement this May, it will revert back to $1000.
But there is a push for the instant asset write-off to be extended again, with the Institute of Public Accountants (IPA) calling on the Commonwealth Government to keep the popular initiative going.
IPA general manager technical policy Tony Greco said the instant asset write-off had been 'very well received' and said dropping it back to $1000 would be 'unacceptable'.
"There’s obviously uncertainty about what the government will do – the scheduled end date is June 2018," Mr Greco said.
"If they do nothing, it ends and will revert back to $1000. We don’t accept $1000 as an adequate number … that’s just not acceptable for a lot of small businesses trying to finance assets."
With a Federal Election looming, this year's budget announcement in May will be critical for the sitting government. That could mean the instant asset write-off is extended again at the $20,000 rate, although nothing is guaranteed at this point. Until then, SMEs have until June 30 to take advantage and purchase new vehicles, machinery or equipment in their 2018 tax return.
If you’re in the market to take your business to the next level, find out how the Morris Finance team can help you get started.