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How to Be Eligible for Instant Asset Write-Off

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Cashflow is vital for a business to succeed. As part of yearly tax planning activities, Australian Tax Office (ATO) designed a legislation that allows $20,000 instant asset write-off scheme which will benefit the small business sector as it will reduce expenses and stabilise cash flow. This scheme was introduced in the 2015 Federal Budget, this allows businesses to get an immediate tax deduction on every asset purchased for less than $20,000.

Businesses that fulfil the requirement of a small business entity will be eligible for this, that is businesses with a turnover of less than two million dollars are entitled to claim an immediate deduction for the cost of depreciating assets purchased for less than $20,000.

This scheme includes acquisition of both used and new assets. Any number of assets whose cumulative value sums up to be less than $20,000 would qualify for the write-off. All assets are eligible for this, except for few which receive different depreciation treatment. These assets include:

  • Horticultural plants: based on their own uniform capital allowance (UCA) rules;
  • Capital works: based on their own “capital works” depreciation rules;
  • Assets which involve low-value or software depreciation pool: subject to the depreciation rules under those pools;
  • Primary production assets: as per ATO, taxpayers can choose to use the accelerated depreciation or specific UCA rules;
  • Leased assets: assets leased out to another party on a depreciating asset lease.

An example will be a restaurant, run as a company. The business purchases a new stove for $12,000 and a new fridge for $6,000. Under the $20,000 threshold, the company will be able to claim an immediate deduction for both the new stove and fridge, giving an immediate deduction of $18,000. With the new small business company tax rate of 28.5% from 1 July 2015, the company will get $5,130 back on its tax. So, under the $20,000 threshold for depreciation, the company would receive an additional cash flow benefit of $5,130.

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