Instant Asset Write off- what is Mean to Small Business Today 23.05.2023

Julius Mather -Senior Partner Northcity Accountants

In an effort to address the economic consequences brought about by the coronavirus pandemic, the Australian government introduced various economic stimulus measures. The goal was to help eligible businesses recover from the impacts of being in lockdown. 

Beyond the cash incentives, the Australian Tax Office (ATO) introduced various tax incentives for businesses, including the Instant Asset Write-off Scheme, the Backing Business Investment (BBI) and the Temporary Full Expensing

We have the benefits of maximizing your business’s tax deductions through the simplified small business depreciation rules such as the BBI and Instant Asset Write-off. This article will cover the final piece of the puzzle – Temporary Full Expensing, which will end as at 30.06.2023.

So, here’s an in-depth look at what you need to know. 

What is Temporary Full Expensing of Depreciating Assets?

The Australian government first introduced the Instant Asset Write-Off Scheme in 2015 to allow small businesses to maximize their deductions by claiming depreciation for certain eligible assets as an immediate deduction, instead of over a few years. However, business owners could only write off assets immediately if the total cost was less than the prescribed threshold amount. 

In 2015, the threshold amount started at $20,000 but later increased over the years to $30,000 in March 2019. 

However, in response to the effects of the global coronavirus pandemic, the ATO made the following changes to the instant asset write-off. From 12 March 2020 until 31 December 2020: 

  • the threshold amount for each depreciating asset had increased from $30,000 to $150,000, and 
  • the eligibility criteria had been expanded to cover businesses with an annual aggregated turnover of less than $500 million. This was increased from $50 million. 

This means that business owners who first used or installed assets costing less than $150,000 between 12 March 2020 and 30 June 2021 could write off the entire value of the asset immediately. 

While the world hoped that the pandemic would end sooner rather than later, the latter proved to be true, and the economic crisis continued to loom. So, in the 2020 Federal Budget speech, the government introduced a new version of the scheme, coined Temporary Full Expensing, which allows small business owners to deduct the full amount of any eligible depreciating asset (without any limit) first used or installed after 6 October 2020. 

In other words, the threshold limit has been lifted, and the scheme has been extended to businesses with an aggregated turnover of less than $5 billion. 

And as part of the 2021-22 Federal Budget, the temporary full expensing scheme was extended for another year, which means that it will extend to assets first used or installed for taxable purposes between 6 October and 30 June 2022. 

Likewise, business owners can deduct the full cost of improvements to these assets or their existing eligible depreciating assets made during this period. 

And unlike with the instant asset write-off incentive, a business owner can choose to ‘opt-out’ of temporary full expensing for an income year on an asset-by-asset basis and claim a deduction using other depreciation rules.

What are the Criteria for Eligible Businesses?

Any business with an aggregated turnover of less than $5 billion is eligible to use temporary full expensing. However, an alternative income test applies for corporate tax entities with an aggregated turnover of more than $5 billion.

To qualify for the temporary full expensing incentive, ​​the depreciating asset must be:

  • new or second-hand*,
  • first held by you at or after 7.30 pm AEDT on 6 October 2020,
  • first used or installed ready for use by you for a taxable purpose (such as a business purpose) between 7.30 pm AEDT on 6 October 2020 and 30 June 2022.

*If it is a second-hand asset, your business can only utilise the incentive if its aggregated turnover is less than $50 million

No Extension to the Temporary Full Expensing Scheme

Unfortunately, the Temporary Full Expensing Scheme will not be extended beyond its current deadline of June 30, 2023.

The scheme was initially introduced to help small businesses recover from the effects of the pandemic and allowed you to immediately deduct the full cost of eligible depreciable assets, which could help reduce your tax bill and provide a cash flow boost for your business.

As long as you purchase and first use (or install) the asset before June 30, 2023, you can still benefit from a full immediate deduction. 

All in all, you must ensure that your eligible asset investments are made before the scheme’s end date. 

In the 2023 Budget, the Government scrapped the Temporary Full Expensing Scheme and introduced Instant Asset write off with a limit of $20,000

Increase to the Instant Asset Write-Off Threshold

While the temporary full expensing scheme will come to an end, there is some good news for small businesses with an aggregated annual turnover of less than $10 million: the instant asset write-off threshold will return to the pre-pandemic threshold of $20,000 from July 1, 2023, to June 30, 2024.

This means that during this period, you can immediately deduct the full cost of eligible assets up to the threshold from your taxable income.

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