A Closer Look at the Instant Asset Write-Off Tax Benefits
The Australian government has introduced a higher instant asset write-off (IAWO) threshold as part of the COVID-19 relief package. It’s essentially a cost-saving incentive for businesses that allows them to claim immediate write-offs for items purchased for business use. The ‘instant’ aspect of the IAWO scheme is particularly appealing for businesses – as it allows for faster tax deductions than other conventional credits. It may seem complicated, but understanding the basics could be beneficial for you and your business in the long run.
What Is the Instant Asset Write-Off?
The IAWO is designed to encourage businesses to invest in new assets to help increase their productivity, efficiency and competitiveness. It means that when businesses make eligible asset purchases, they can deduct a portion of the cost from their tax payable in the same income year.
Eligibility Criteria
The IAWO applies to businesses with an aggregated turnover of $500 million or less. These businesses are eligible to claim an instant tax deduction for each asset it purchases or installs costing less than $150,000 purchased between 12 March 2020 and 31 December 2020. From 2021 to 2022, the threshold will be capped at $1,000, and businesses are eligible to claim $150,000 worth of assets each year.
How Does It Work?
The IAWO is a dollar-for-dollar deduction for businesses when they purchase eligible assets. There’s no limit to the amount of assets a business can write-off as long as each asset is valued under (or equal to) the IAWO threshold.
When a business buys an eligible asset and deducts its cost from their taxable income in the same tax year it was purchased, this is called depreciation.
By claiming a deduction for the asset’s cost in the same tax year it was purchased, businesses could potentially reduce their tax liability in this same time frame.
Claiming the IAWO
It’s important to note that businesses must be registered with the ATO in order to claim the instant asset write-off. This also means that businesses must keep up to date with their ATO obligations, such as lodgement of business activity statements and income tax returns.
Businesses must also supply evidence of the asset’s purchase and installation to the ATO by way of valid receipts.
Advantages of the Instant Asset Write-Off
The IAWO can be beneficial for businesses in a number of ways. Not only does it enable businesses to receive a tax deduction for assets in the same income year as the purchase was made, but it also allows businesses to reinvest any savings back into the business to help them grow and develop.
Being able to invest in assets to expand or update their business operations with the IAWO, businesses can focus on the bigger picture. This can help with product or service advancements and modernisation while enabling businesses to remain competitive.
Conclusion
The IAWO allows businesses to ‘instantaneously’ receive tax deductions on eligible assets they purchase or install. By supplying suitable evidence of the asset’s purchase and installation to the ATO, businesses can easily claim their tax deductions during the same tax year. What’s more, this could lead to considerable savings for companies to reinvest back into their business.
If you want to learn more about small business asset write-offs and other tax benefits, it’s best to work with a professional accountant to ensure you are getting the most out of your tax deductions. At SMB Accounting, our Sunshine Coast accountants do all that and more. When you work with us, you can be sure that your finances are in safe hands. Contact us today, and let us help you with your tax deductions and asset write-offs.