Hurry, hurry! Take advantage of the $30,000 instant asset write-off before the threshold is due to revert to $1,000 on 1 July this year.
In the 2019-20 Federal Budget, the Treasurer extended the range of this tax break not just from $25,000 to $30,000, but also to include for the first time medium-sized businesses – those with an aggregated turnover between $10 million and $50 million – as well as small businesses.
Instead of claiming deductions over several years, this scheme allows these businesses to instantly deduct – in this financial year – a depreciating asset bought for less than $30,000 before 1 July 2020.
Valuable opportunity for practitioners
“This is probably the most significant development for business taxpayers for this financial year,” said Trevor Snape, co-author of Thomson Reuters’ The Australian Tax Handbook 2020.
Other key measures to feature in the updated Handbook, to be published on 31 January, include the extension of director penalty provisions to cover GST and other indirect tax liabilities, and the introduction of a super guarantee amnesty for employers for historical non-compliance.
“With the potential to impact up to two million businesses in Australia, the opportunity for tax practitioners to assist their clients with this deduction is very substantial,” said Snape, drawing on figures from the Australian Bureau of Statistics.
Rules to observe
One of the good things about this write-off is that it’s not complicated, but there are a number of strict rules to follow, adds Snape.
Here are some. The asset needs to be first purchased and first used, or installed ready to use, before 30 June this year. So, the coffee machine whose cost is being claimed, can’t still be sitting in its wrapping on 1 July. The emphasis on “first” purchased and used is to prevent businesses from selling the asset, buying it back, then claiming for it again.
There is also no limit to the number of assets that can be claimed, and the threshold applies to each asset, whether or not it’s new or second-hand.
Although the threshold is due to revert to $1,000 on 1 July, its unpredictable history suggests anything could happen. After starting out in the 2011-12 tax year at $1,000, it rose to $6,500 in 2012-13, before it dropped back to $1,000 in 2014, only to be catapulted to $20,000 in May 2015, then to $25,000 in January last year until the April Budget when the current threshold was announced.
Use it or lose it?
So, the pressure is on to grab this generous benefit before its value drops.
“You’ve got up to 30 June to start buying and start using the depreciating asset,” says Snape, although some businesses may prefer to wait until the Budget before they make their purchase.
“The government may increase the threshold again. Or they might extend it for another year, in which case the pressure to buy before 30 June would be off. Then you can defer the purchase until a time when cashflow is easier, which may be later in the year.”
If you are a company, another factor to consider is the benefit of reducing your tax bill before the company tax rate is cut.
The government’s plan in last year’s Budget to fast track the drop in the tax rate progressively over the next two years from the current 27.5% to 26% in 2020-2021 to 25% in 2021-22 could influence business decisions to make that purchase before 30 June this year, once the government plans for the scheme in 2020-21 are known, says Snape.
“If you can reduce your tax bill, it’s always better to do it when a higher tax rate applies, than a lower rate, because you obviously gain more.”