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New legislation reintroduces the $20k instant asset write-off threshold.
The temporary rules allowing full expensing, entailing an instant deduction for the complete cost of assets obtained since October 6, 2020, concluded on June 30, 2023. Although the instant asset write-off threshold was slated to revert to $1,000 starting July 1, 2023, the Government has presented a Bill to Parliament. This proposed legislation includes amendments aimed at maintaining a $20,000 threshold for small business entities during the 2024 income year.
Are you looking to purchase assets for your business?
If your business is eligible, it may benefit you to claim an immediate deduction for business assets bought and used this financial year. This means you claim the entire expense of the asset rather than depreciating it and apportioning the cost over a number of years.
In the May 2023 budget for the 2024 financial year, the proposed instant asset write-off threshold was announced as $20,000. While the measure is not yet law, we don’t anticipate any problems with this law passing.
The $20,000 threshold applies to each asset so you could claim a tax deduction for multiple assets in the same financial year.
How to quality for the instant asset write-off?
To qualify for the $20,000 instant asset write-off threshold, a small business entity must meet the following conditions in the 2024 income year:
1. Conduct a business under general principles.
2. Have an aggregated annual turnover of less than $10 million, based on either the current year or previous year figures.
3. Opt for the simplified depreciation rules for the 2024 income year.
4. Ensure that the asset's cost is below $20,000.
5. Use or install the asset for a taxable purpose between July 1, 2023, and June 30, 2024.
It's crucial to note that if a small business entity chooses not to apply the simplified depreciation rules for the 2024 income year, it forfeits access to the instant asset write-off, even if it meets the other basic conditions.
The write-off threshold is applicable per asset. Therefore, a small business entity can potentially deduct the full cost of multiple assets throughout the 2024 year, provided each asset's cost is less than $20,000.
The increased instant asset write-off threshold also affects the determination of whether the full pool balance is written off in the 2024 income year. When applying these rules, it's essential to consider the hypothetical pool balance without accounting for the current year's depreciation deductions.
Additionally, the provisions preventing small business entities from re-entering the simplified depreciation regime for five years if they opt out (the lock-out rules) will remain suspended until June 30, 2024.
What assets are eligible for the instant asset write-off?
The instant asset write-off rules exclusively pertain to assets covered by depreciation provisions. Expenditure on capital improvements to buildings governed by the capital works rules does not meet the eligibility criteria.
Assets with a cost equal to or exceeding $20,000, ineligible for immediate deduction, may be included in the small business general pool. These assets can undergo depreciation at a rate of 15% in the initial income year, followed by 30% depreciation in each subsequent income year.
How to claim the instant asset write-off?
If your business has an aggregated turnover of less than $10 million, you can claim the total cost of eligible assets. Assets must be installed and ready for use between 1 July 2023 and 30 June 2024. The payment for the asset may be in a different tax year.
Whether you are on a cash or accrual basis for your BAS will govern which period you claim applicable GST within.
Some businesses and types of assets can't be claimed immediately – talk to us if you’ve got lease arrangements for assets you’ve bought, horticultural plants such as grapevines, research and development assets, or you're in the building and construction industry. Some types of software and improvements to assets are also excluded. Assets costing more than $20,000 are treated differently.
And remember – you can only claim a business deduction for business use of assets – if you use an asset for both personal and business, you’ll need to apportion the percentage of usage between the two.
Keep your records!
Remember to keep all your business records for at least five years, including all asset purchase and installation documents.
Talk to us about purchasing assets for your business – should you purchase now or later? With existing funds or through a loan? We’ll help you plan the best strategy to look after your cash flow.