Changes to the instant asset write-off scheme for SMEs

As the world struggles to come to terms with the ongoing reality of COVID-19 , there’s going to be an inevitable impact on small business in Australia. The Federal Government, however, recognises that businesses – and small to medium businesses (SMEs) in particular – are the lifeblood of the Australian economy. The Government’s March 2020 Economic Stimulus Package, in response to challenges created by the spread of COVID-19, further extends the already very useful instant asset write-off tax concessions for businesses.

What exactly is an instant asset write-off?

Although the instant asset write-off scheme has now existed for a number of years, the changes effective as from 12 March 2020 allow businesses with an annual turnover of less than $500 million to immediately write off, as an expense for tax purposes, new or second-hand asset purchases costing up to $150,000 each.

This means that instead of depreciating an asset over a number of years, you can effectively count the asset purchase as an expense in the current financial year. This may reduce your tax bill, provided you have purchased and installed the asset, ready for use by 30 June 2021.

Extended provisions are only temporary

Businesses with a turnover of $500 million are clearly not small businesses, but SMEs, however low their revenue, can benefit from the increase to the asset value threshold. This is now $150,000, up from the previous threshold of $30,000.

The Government’s media release makes it clear that these investment-boosting measures are only temporary. Unless either the new $150,000 threshold, or the previous $30,000 threshold, is now extended to continue until 30 June 2021, the instant asset write-off threshold will revert to the long-term standard of $1,000 from 1 July 2021, along with a business turnover limit of $50 million. So now is the time to act, particularly if you have plans to purchase assets costing more than $30,000 each.

Boost your business activity and improve cash flow

There are many ways to take advantage of this generous tax concession for businesses. The Government’s media release gives examples of a concrete tank for a builder, a tractor for a farming business and a truck for a delivery business. You could also purchase office equipment or a new fit-out for your shop, or any industry related equipment.

You are able to purchase and write off multiple assets under this scheme, without any limitation on the number of items. So, if you are considering buying equipment for your business which has an individual cost of between $1,000 and $150,000, you could save a lot of tax by bringing forward the date of your purchase to meet the 30 June 2021 deadline.

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