If you’re a small business in Australia, you’ve likely heard of the $20,000 instant asset write-off. This tax break, available for small businesses who have an annual turnover of less than $10 million, allows SMEs to deduct equipment, furniture or other capital items priced up to $20,000 immediately.

This is a huge boost on the standard $1,000 limit and offers a powerful opportunity for your business. The team at Morris Finance can even discuss options for financing your latest purchase, to maximise cash flow and profitability.

If you want to take advantage of this generous small business tax policy, you need to act fast: it’s coming to an end on June 30, 2018. After this date, the asset limit will drop back to $1,000.

“The ability to immediately claim tax deductions on purchases under $20,000 is a great incentive to give the small business and retail sectors a confidence boost,” confirms BDO Australia.

So, how does the $20,000 business tax write-off work – and more importantly, how can you take advantage of the opportunity before time runs out?

How your business can leverage the $20,000 instant write-off

The instant asset write-off makes use of the simplified depreciation rules for small businesses. It relates to any asset that has been purchased within that financial year costing $20,000 or less, and allows you to deduct it immediately (rather than deducting it over a number of years).

This generous deduction is a great incentive for many SMEs, especially those paying the highest tax rate of 47 percent, as this means you could be eligible to receive more than $9,000 back at tax time. Keep in mind that this write-off isn’t ‘free money’, but it is a tax relief, so it’s important that you only purchase items that will boost your business’s productivity and profitability. Though receiving up to $9,000 back is beneficial, you still have to spend (up to) $20,000 in the first place.

Which items are eligible?

The write-off applies to both new and secondhand items, and the entire cost must be less than the total worth of the asset – irrespective of whether you’ve received any trade-in amount for it. Depending on what the item is, you must also subtract any personal use out of the claim.

Claimable items include things like:

• IT hardware (computers, photocopiers, printers, landline phones and scanners)
• Furniture and fittings for shops or offices (tables, desks and chairs)
• Plant and equipment (carpets, blinds, freestanding furniture and hot water systems)
• Company signage
• CCTV video surveillance or alarms
• Work vehicles
• Tools and machinery.

As an added benefit, there’s no limit to the amount of items you can write off – as long as each one costs less than $20,000.

As per the simplified depreciation rules, aside from the ability to immediately write-off assets under $20,000, assets that cost more than this amount can be pooled, after which you can claim a 15 percent deduction for the first year, and 30 percent each year after that.

Things to consider

On 1 July this year, the instant business asset write-off will return to its usual threshold of $1,000, so the current opportunity to maximise your tax deductions is limited.

When looking at new purchases for your business, keep in mind that if your business is registered for GST, then the GST will be excluded from the cost of the asset; if you are no registered, then the GST component will be included in the cost.

Also, BDO Australia advises that for small businesses across Australia, “cash flow is one of the biggest concerns”.

“New spending still means cash coming out of the business, regardless of the amount or whether it can be claimed back, so the business should be able to handle the additional outflow,” a BDO spokesperson says.

To this end, it may be beneficial to consider financing your next business purchase, allowing you to take advantage of the $20,000 instant write off, but pay off the asset’s cost via monthly instalments.

At Morris Finance, we partner with our clients to create results through the intelligent structuring of debt, maximising your business profitability along the way, so contact us today.