Previously due to end on 1 July 2020, the Federal Government has now extended the deadline for making claims to 31 December 2020.
All other conditions will remain the same. From 1 January 2021, the threshold will return to $1,000 and apply to small businesses only with an aggregated turnover of less than $10 million.
We have done a simple break down for what this could mean for you as a business owner.
Previously the Instant Asset Write-Off Scheme threshold for small businesses was $30,000. This scheme allowed for business owners to spend up to $30,000 on their business and immediately write off a depreciable amount for the asset that they purchased. As a result of the COVID-19 outbreak, the government has raised the instant asset write-off threshold to $150,000 for business owners with a turn over of up to $500 million.
Can I still use the instant asset write-off?
Yes! The deadline has been extended for businesses that have struggled to acquire and get assets ready for use by 30 June 2020. Although there is an extra 6 months for this, businesses are still encouraged to act fast to source assets and have them in use by the new deadline especially if they have a delivery lead time.
What does this mean for your business?
Normally, if a business were to purchase an asset for the amount of $50,000, they would only be able to claim tax back partially every year for the assets lifetime, in relevance with the correct depreciation rate for the class of the asset. Now with the threshold increase to businesses with turnover less than $500 million per annum purchasing an asset less than $150,000, the business is able to claim 100% at end of that financial year, therefore providing a tax saving that same year.
The purpose of the threshold increase is to encourage businesses to purchase business assets and have them in use prior to 31 December 2020.
How does the instant asset write-off relate to purchasing a car?
Here is what you need to know about utilising the scheme to purchase a NEW OR USED vehicle for your business.
To qualify, the passenger vehicle needs to be designed to carry a load of less than 1 tonne and fewer than 9 passengers. Businesses will be able to claim an immediate deduction if the vehicle cost if it is less than $57,581. This amount represents the car cost depreciation limit, so regardless that the concession applies to assets of up to $150,000, vehicles under this description default to that amount.
For other motor vehicles, e.g. commercial vehicles designed not principally to carry passengers, may be able to claim an immediate deduction where the cost is up to $150,000 excluding GST. The motor vehicle must be first used between 12 March 2020 and 31 December 2020.
If Bob who is a small business owner was to purchase a Brand New Rav4 from Sunshine Toyota (view our stock here) at the price of $45,000, he can immediately claim 27.5% of that asset in the same financial year. Therefore paying $12,375 less tax in that tax year. Whereas before he would only be able to claim 27.5% of tax on a set depreciated amount over a term, meaning he would only be making small deductions for that asset each year.
Are you ready to take advantage of this threshold increase and upgrade your business vehicle? Chat to our team today about how we can assist in keeping your business moving!
The information provided is not advice or from a professional. Please seek professional advice from an accountant about your personal business before purchasing.