One of the government’s coveted initiatives in its COVID recovery plans is the instant asset write-off. But what does that actually mean and how can you and your clients benefit from it?
In a (simplified) nutshell
It allows businesses to buy eligible assets and claim that expense on their tax. The price of the asset is to offset against a business’s income, lowering their payable income tax.
Here’s an example of a business who had taxable income of $100,000.
They buy a work van in order to offer mobile vehicle inspections. The van costs $40,000 excluding GST.
Without the instant asset write-off scheme
The company is taxed on their $100,000 income. The tax rate: 27.5% or $27,500 paid in tax in this situation.
With the instant asset write-off scheme
The company is taxed on $60,000. This is minus the cost of the van ($40,000). The lower taxable amount results in less tax paid. The tax payable is now $17,100.
This saves $10,400 in tax. In other words, that translates to a 26% discount on the van.
The purpose of the scheme is to accelerate the speed at which businesses can make deductions for purchases, in addition to stimulating the economy.
As a Nodifi partner, how can my clients benefit?
The key takeaways for your commercial clients:
- Reduces the amount of business tax paid or, essentially reduces the cost of the purchased asset
- Enables businesses to scale their business faster
- Ability to write-off assets of any value (previously capped at $150k)
Put simply, all eligible businesses looking to purchase assets can benefit from the scheme. Updates released in the 2020 Federal Budget make the scheme available to all Australian businesses with up to $5 billion in annual turnover.
That translates to 99% of businesses, or some 3.5 million businesses – only the largest Australian businesses will be excluded: the top 1%.
If your commercial clients are considering the thought of purchasing or upgrading an asset for their business, now is the time.
The Nodifi platform offers quick quotes and scenarios for your clients, which can be great for any complex commercial scenarios.
What kind of assets can you write-off?
Before COVID, the instant asset write-off threshold was capped at $30,000. Prior to the 2020 Federal Budget, it was increased to $150,000.
Now, there’s no value cap.
These assets include a large range of items. For example, vehicles, plant equipment, tools and office equipment. The assets can be new or used. More examples given by the government include coffee machines, forklifts, tractors and machinery, freezers and labellers.
What assets are excluded?
- You can’t write-off an asset that you lease out or plan to lease out more than 50% of the time
- Low-value assets: something that costs less than $1,000 after deducting any GST credits
- In-house software
- Intangible assets like purchased customer databases or donations
Other instant asset write-off questions
What about assets that I also use personally?
You can only write-off the percentage that you use for business. For example, a business buys a vehicle for $50,000. 80% of the time, they use it for business purposes and 20% it’s for personal use. Only 80% or $40,000 can be written off.
An example might be a ute for a tradie who uses it on weekends to go camping.
Should I buy a business asset now?
Every business operates under different circumstances. Make sure you talk to an accountant or tax professional to make sure it’s a good idea for you.
Generally speaking, the government put this scheme in place to help businesses and the economy recover from the COVID-19 pandemic, so many will take advantage of the tax write-offs.
What if I buy multiple assets?
As per the 2020 Federal Budget, businesses can purchase multiple assets under the scheme.
Examples include vehicle fleets, multiple pieces of machinery and equipment for expanding work forces.
Is there anything to be wary of?
- The scheme does not include digital assets at the stage. For example, while businesses can upgrade their physical computer equipment, the scheme won’t cover software to run such equipment.
- It’s a tax deduction, not a rebate. Some people get confused and come to believe that the government will reimburse them for things they buy. This is not the case.
The instant asset write-off scheme is great news for businesses – small, medium and large. It’s aimed at a fast COVID recovery in support of businesses and to stimulate the economy. Make sure your clients are aware of how their businesses can benefit without confusion.