Understanding the Instant Asset Write Off Rules
Under Instant Asset Write-Off rules, eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use.
Instant asset write-off can be used for multiple new and second hand assets provided the cost of each asset is less than the relevant threshold.
Instant asset write-off threshold ($30,000)
Eligible Businesses: Small businesses with an aggregated turnover of less than $10 million
Period: 2 April 2019 – 11 March 2020
Small businesses must apply the simplified depreciation rules to claim the instant asset write-off. Some assets that are excluded from the simplified depreciation rules include:
assets that are leased out, or expected to be leased out, for more than 50% of the time on a depreciating asset lease
assets allocated to a low-value asset (pool) before using simplified depreciation rules
horticultural plants including grapevines
software allocated to a software development pool
assets used in your research and development activities
capital works, including buildings and structural improvements
Instant asset write-off threshold ($150,000)
Eligible Businesses: Small businesses with an aggregated turnover of less than $500 million
Period: 12 March 2020 - 31 December 2020
Under the current law, businesses with annual aggregated turnover of less than $500 million are entitled to an immediate tax deduction for the cost of a depreciating asset, whether new or second hand, with a cost of less than $150,000 which is first used or installed ready for use between 12 March 2020 and 31 December 2020.
Example:
Richard owns a company, Rise Pty Ltd, through which he operates a farming business in New South Wales. Rise Pty Ltd has an aggregated annual turnover of $25 million for the 2019-20 income year. On 1 May 2020, Richard purchases a second hand tractor for $140,000, exclusive of GST, for use in his business.
Under the $150,000 instant asset write-off, Rise Pty Ltd would claim an immediate deduction of $140,000 for the purchase of the tractor in the 2019-20 income year. At the company tax rate of 27.5 per cent, Richard will pay $38,500 less tax in 2019-20.
*Temporary Full Expensing (Immediate deduction for total purchase price)
Eligible Businesses: Businesses with an aggregated turnover of less than $5 billion
Period: 6 October 2020 - 30 June 2022
From 7:30pm on 6 October 2020 - 30 June 2022, temporary full expensing allows a deduction for:
the business portion of the cost of new eligible depreciating assets for businesses with an aggregated turnover under $5 billion or for corporate entities that satisfy the alternative test
the business portion of the cost of eligible second-hand assets for businesses with an aggregated turnover under $50 million
the balance of a small business pool at the end of each income year in this period for businesses with an aggregated turnover under $10 million
Car Depreciation Cost Limit
A depreciation cost limit applies to passenger vehicles that are designed to carry a load less than one tonne and that carries fewer than 9 passengers.
The depreciation cost limit for cars is:
$57,581 for the 2019–20 income year
$59,136 for the 2020–21 income year.
For example, if you purchase a car that costs $90,000 on 14 April 2021 that will be used 100% for business purposes, you will only be able to claim $59,136 in depreciation as the depreciation cost limit for the 2020/2021 income year is $59,136. The maximum GST credit that can be claimed for the purchase of this vehicle is $5,376.