Your guide to the Instant Asset Write-Off [2021]

Brendan Pearce

Friday, 20 March 2020

As a part of the stimulus response to the economic hardship caused by Coronavirus (COVID-19), the government has announced the expansion of their instant asset write-off program. This will allow SMEs to instantly write-off assets up until the end of 2020.

The cut-off date was pushed back from June 30, extended another six months to further help SMEs boost cash flow.

What is the instant asset write-off?

The instant asset write-off allows businesses to immediately write-off, or depreciate, the cost of an asset in the first year it is used or installed, reducing taxable income. In other words, rather than writing off costs over several years (sometimes ten or more) you can get it over and done with in a single tax run, saving you both time and money. The assets can be either new or second-hand as long as they're ‘new’ to your business.

The instant asset write-off is not a new initiative—it was introduced in 2015, allowing small businesses to claim tax deductions on assets that cost under $30,000. But since the recent outbreak of COVID-19, that figure has risen to $150,000 to help support both SMEs and larger corporations. You can choose to deduct a single asset, or multiple if you wish, as long as each asset costs less than $150,000.

In addition, businesses with an annual turnover of up to $500 million (up from $50 million) can now take advantage of the instant asset write-off. The proposal applies from 12 March 2020 until end of 2020, so any assets (whether new or used) purchased and installed within this timeframe can be deducted.

Also, note that leased assets are not entitled to a deduction—you’ll need to secure an appropriate type of finance in order to be eligible. If you’re short on cash, we can help you secure appropriate finance in as little as 24 hours to put towards your new equipment, vehicles, machinery or other business assets.

How will the expansion benefit Aussie businesses?

The instant asset write-off, along with other government initiatives, is in place to help support SMEs manage cash flow and retain employees during this turbulent period.

The initiative is predicted to lower taxes paid by Aussie businesses by $2.5 billion over the next two years. In addition, the new thresholds mean much larger companies can now access the benefits of the instant asset write-off.

If you’ve been eyeing off an asset or putting off an equipment upgrade, now could be the time to invest in your business. As an example, let’s say you purchase an asset for your business that costs $150,000. By doing so now, you’re also decreasing your taxable income by this same amount.

The biggest challenge SMEs face in doing this is dealing with the period between purchasing an asset and seeing the benefits in lower taxed income. To bridge this gap, many SMEs take out a small business loan or equipment finance to purchase their assets while maintaining a healthy cash flow.

Our lending experts can help you find a finance tailored solution that supports your business while allowing you to take advantage of the asset write-off. In some cases, our experts are able to organise finance for you within 24 hours—no waiting around.

As mentioned, the instant asset write-off allows you to immediately write-off assets in one lump sum, rather than in smaller increments over time. Not only does this mean one less thing to remember each year at tax time, but you’ll end up saving money by reducing your tax burden.

And, you’ll be able to do all this while benefiting from the output of your new assets or upgrades—it’s the perfect excuse to spruce up your office space or fill your toolkit with shiny new gadgets.

Am I eligible for the instant asset write-off?

Previously, you needed to be considered a small business under the ATO's definition to be eligible for the instant asset write-off. However, to support businesses of all shapes and sizes in Australia during the COVID-19 outbreak, the government has extended its support.

Expanding the threshold means 5,300 additional businesses in Australia (of which employ 1.9 million Aussies!) will be able to access the instant asset write-off when they were unable to previously.

To be eligible for the increased write-off amount, you must have an annual turnover of no more than $500 million and your assets must:

  • Cost less than the instant asset write-off threshold ($150,000)
  • Be purchased, and installed or used, between 12 March 2020 and 31 December 2020.

One other thing to keep in mind is that you can’t write-off every type of asset. Ensure the purchases you’re considering meet the scheme’s eligibility criteria before handing over your cash. Some items businesses can typically write-off under the scheme include:

  • Work vehicles
  • Tools and machinery
  • Computer hardware e.g. desktop computers, printers and photocopiers
  • Office/store fit-outs and furniture
  • Storage solutions e.g. sheds and containers

For more information on which assets are supported under the instant asset write-off scheme, read the ATO's general depreciation rules or speak with your tax accountant for a complete list.

How do I claim the instant asset write-off?

Now’s a great time to invest in equipment for your business, and taking out finance is a wise way to do so with minimal disruption to your cash flow. Valiant can help you secure the business equipment you need at a competitive rate.

Once you’ve purchased and installed your equipment, you can claim the instant asset write-off during tax time. As mentioned, it’ll be a one-off claim, making it easier on you and your wallet.

Brendan is a Senior Product Specialist here at Valiant, specialising in asset finance and equipment loans. He's passionate about helping Aussie business owners secure the resources they need to propel their businesses into new phases of growth.

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