Instant Asset Write Off Explained
For more than 2 years many businesses faced a lot of headwinds to maintain their day to day operations, as they struggled with the impact of COVID-19. The Australian Government responded with an unprecedented level of support for small business owners at the start of the pandemic.
There are still certain waivers and grants as the government has transitioned to a new phase of the pandemic. Farmers are also able to benefit and take advantage of tax benefits and there has never been a better time to build a shed.
- Instant Asset Write Off has been extended by another year till June 30, 2023
- The write-off scheme is allowed for Australian businesses with an annual income of less than $5 billion
- Any asset, whose depreciation which is typically allowed over (say) 5, 10 or 15, years, can be taken within the same year itself
- The government removed the previous limit of $150,000 to claim
Here’s all you need to know about Instant Asset Write Off
As per this Scheme, the Australian Government allows business owners to write off the entire cost of an eligible asset within a year itself. This means, any asset, whose depreciation which is typically allowed over (say) 5, 10 or 15, years, can be taken within the same year itself. The Government had capped an amount of $150,000 per asset. However, in response to the COVID-19, they have removed this limit of $150,000.
Eligibility to receive the benefit from this scheme
- The write-off scheme is allowed for Australian businesses with an annual income of less than $5 billion.
- The asset needs to be used or installed for business purposes before the below mentioned deadline.
- The business is allowed to claim deduction for any number of assets, within the threshold limit.
Looking for a shed, here’s how this will work
Let’s say you are a farmer that has an annual turnover of $700,000 and a taxable income of $250,000. Given your turnover, you would be typically required to pay tax of 25% on your taxable income which is 25% of $250,000 = $62,500.
Now, when you construct a shed worth $150,000, its total value would be deducted from your taxable income of $250,000 in the same year, so your new taxable income would be $100,000 ($250,000 – $150,000). So, the tax due will be 25% of $100,000 = $25,000.
Thus, you enjoy the strong built asset which is going to improve your business’s productivity, while saving on taxes to the tune of $37,500.
Make the most of it, as the Timeline has been extended
This Instant Asset Write Off Scheme was scheduled to expire on June 30, 2022, but in the May Federal Budget 2020-21, the same has been extended by another year till June 30, 2023. So, it’s perhaps the right time to make the most of this opportunity by claiming your instant write off on the new asset which you have been thinking of constructing.
Note: This article encourages small businesses to make the most of this opportunity, given by the Government, to acquire assets, while being cost effective at the same time. It is however important to note that you should seek professional or expert opinion from your financial accountants or tax experts, before deciding on to take benefit of such schemes. We do not intend to give any kind of financial or tax advice on the above subject matter.