What has the asset write-off threshold been increased to?
Last week the Morrison Government announced that they would increase the threshold of the current asset write-off scheme from $30,000 to $150,000 for all businesses with an aggregated annual turnover of less than $150 million until June 2020. After that the threshold will revert to $,1000 — a level we haven’t seen since 2015.
Remaining cash-flow positive is of primary concern for any business large or small. Essential purchases and investment in any business is an important factor in the day-to-day operation and can be difficult, especially when money is tight. Now that the threshold has been lifted to $150,000 for instant tax writ-off's this should help make the decision to invest that much easier.
I’m a sole trader, am I eligible?
A sole trader is the simplest form of a business and therefore eligible to the asset write-off scheme — the main difference in distinction is as a sole trader you are legally responsible for all aspects of the business, including debt pay off and taxes.
<Read here to get a full understanding of the definition of a sole trader >
So, what qualifies as the new instant tax write-off?
As of the 12 March 2020 business (including sole traders) can write off the tax from purchases up to the value of $150,000, as part of their tax claim. All eligible purchases that where made from 12 March 2020 till 30 June 2020 and are valued below the $150,000 will qualify under the new threshold.
Assets bought in the tax year before 11 March 2020 will still qualify for an instant tax write-off of $30,000. Remembering the instant tax write-off threshold is due to revert to $1000 for small businesses (turnover less than $10 million) from 1 July 2020.
Any single asset purchased under $150,000 from the 12 March, or $30,000 before 12 March, qualifies for the asset tax write-off. This means that if a business purchases multiple assets under these amounts, they should all qualify – even if the cumulative cost exceeds $150,000/$30,000. The cost of the asset includes both the amount you paid for it and any additional amount spent on transporting the asset, improving it or installing it for use.
What can I write off?
In order to be eligible to write of tax on purchases under the new threshold, assets need to qualify:
- Entire cost of the asset must be less than $150,000 (from 12 March 2020) or $30,000
- (before 12 March 2020), not just the business-use portion and inclusive of GST
- Asset can be new or used
- Asset purchased was first used or installed and ready to use in the income year you're claiming it in
If you purchase an asset that is valued more than the $150,000 threshold then you can pool the business portion of the asset and claim a 15% deduction in the year you start to use the asset or a 30% deduction after the first year.
So, if you decide it’s time to upgrade your Ute to a newer version or invest in new heavy plant equipment then as long as each asset is valued under $150,000 you can instantly write the tax off this financial year. Provided you purchased your new Ute or heavy plant hire — or both, between the dates of 12 March and 30 June 2020.
Read the ATO’s link on what it means to business pool and depreciate assets costing more than the threshold.
What if I trade an asset to buy a new one, am I still eligible?
Yes, you are still eligible for the asset write off, however, there are some criteria you need to satisfy.
Purchases made from 12 March 2020
If you're trading in an asset and the process appears as two transactions – e.g. you purchase a new Ute for business purposes and trade in your existing vehicle, then the cost of the new vehicle will need to be below the $150,000 threshold in order to qualify for the instant tax write-off. This is irrespective of the money made from selling the original asset. So, if your new vehicle, or plant machinery, is $180,000 but you made $35,000 selling your previous vehicle, even though the transaction cost a total of $145,000, you would still have to add the new purchase of $180,000 to your small business pool.
Purchases made before 12 March 2020
The same process applies to the lower threshold. So, if you purchases new equipment before 11 March 2020 and it came to $35,000, but you made $7,000 selling your old equipment - even though you were actually only $28,000 out of pocket (below the threshold) - you would still have to add the new purchase to your small business pool.
Here are some links for further reading: