What is an instant asset write-off?

An instant asset write-off allows small businesses (with an annual turnover of less than $10 million) to claim immediate deductions (up to a limited amount) for new or second-hand plant and equipment asset purchases such as vehicles, tools and office equipment. The assets must first be used, or installed for use, in the income year you’re claiming for.

The initiative has been around since 2015 and is set to be extended to 30 June 2020, so there is still plenty of time for you to consider making use of this tax deduction.

The amount you can write-off instantly will depend on when the asset was purchased and the associated threshold amount. Thresholds have changed over the past few years so check the ATO website for full details.

Before making any large purchases, we suggest you speak to your accountant or tax professional and assess how the asset will benefit your business and how the purchase may impact on your cash flow or finances in the short term.

If you decide to take advantage of the instant asset write-off, you should make the decision based on the needs of your business. For example, if you need to purchase a vehicle for deliveries to expand your business operations to help you achieve your business goals, or because it is in line with your business plan.

The instant asset write-off threshold applies to the total cost of the asset, not just its taxable portion. Any purchases equal to or more than the threshold can be put into your small business asset pool, where you will be able to claim gradual deductions (depreciation) each year.

For example, if you buy a motor vehicle for $38,000 when the threshold was $20,000 but the business use of the asset is only 50 per cent ($19,000) you can’t claim the instant asset write-off, but you can allocate that $19,000 to a general small business pool.

If you buy an asset that comes under the threshold, you can claim the business portion of the asset’s use in your tax return for that financial year.

When it comes to trade-ins, the instant asset write-off is assessed based on the full purchase price of the item. For example, if the threshold was $25,000 when you purchased a motor vehicle for $27,000, and you also traded in another vehicle for $5,000, you’re unable to state the cost of the vehicle as being $22,000 so it can be claimed as an instant asset write-off.

TIP: If your business is structured as a partnership there’s no double-dipping allowed. Under the instant asset write-off, purchases are considered as being owned by the partnership and not by individual partners. If a partner buys an asset such as a motor vehicle in their own name, the asset won’t be eligible for the write-off as part of the partnership, and if the partner does not qualify as a small business taxpayer personally, they will not be eligible for the write-off.

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