- a massive increase to the instant asset write-off scheme this financial year, and
- accelerated tax deductions for depreciation for the next two financial years.
Both of these measures make buying business assets and equipment more attractive from a tax point of view than they were before the coronavirus pandemic hit the Australian economy.
We’ll look at both of these measures in turn and how they could help your business.
The increase to the instant asset write-off scheme
Up until June 30 this financial year, businesses with an annual turnover of up to $500 million can claim tax deductions for multiple business assets up to the value of $150,000 each.
Prior to March 12 this year (i.e. pre-COVID-19), businesses could only claim assets purchased up to the value of $30,000. In addition, only businesses with an annual turnover of up to $50 million were eligible to claim under the instant asset write-off scheme.
Importantly, you only have until June 30 to take advantage of the increased tax deductions on business assets. The instant asset write-off scheme will reduce significantly for the 2020/2021 financial year. The maximum value of each asset that can be written off will reduce to just $1,000 from July 1 this year. The annual business turnover threshold for eligibility for the scheme will also reduce then to $10 million.
What assets can I write off under the instant asset write-off scheme?
Examples of asset that you can write off under the instant asset write-off scheme include:
- business vehicles,
- office equipment, and
It’s important to understand that the $150,000 threshold value applies to each asset that you buy between March 12 (when the enhanced instant asset write-off scheme was introduced) and June 30 this year, not to the combined value of assets that you buy.
For example, if you buy a new business vehicle worth $60,000 and new business equipment worth $100,000 before the end of this financial year, you’ll be able to instantly write off the total cost of both assets on your tax return (i.e. $160,000), even though their combined cost exceeds $150,000. That’s because the cost of each individual assets falls within the $150,000 threshold.
How much tax will I save by using the instant asset write-off scheme?
How much tax you’ll save depends on your business tax rate and the structure of your business. For example, if you’re operating your business as a sole trader or in a partnership structure, you pay tax at your marginal rate. The current marginal tax rates in Australia are below.
|Taxable Income||Tax Payable|
|0 – $18,200||Nil|
|$18,201 – $37,000||19c for each dollar over $18,200|
|$37,001 – $90,000||$3,572 plus 32.5 cents for each dollar over $37,000|
|$90,001 – $180,000||$20,797 plus 37 cents for each dollar over $90,000|
|$180,001 and over||$54,097 plus 45 cents for each dollar over $180,000|
If your business has a company tax structure and it has an annual turnover of less than $25 million, the current company tax rate in Australia is 27.5%.
Accelerated depreciation tax deductions
If you buy a business asset between now and June 30 in 2021 and it exceeds the instant asset write-off threshold, you can deduct 50% of the cost immediately as depreciation. This is known as accelerated depreciation. The remaining cost of the asset can be deducted at normal depreciation rates.
To be eligible for accelerated depreciation, your business needs to have an annual turnover of less than $500 million.
How we can help
It’s important to understand that the Australian lending market is highly competitive and that there is a huge range of lenders and products available. It’s time-consuming and difficult to research the market yourself. We can remove that hassle for you because we do it for a living.
We also understand the lending criteria of different lenders, so we can recommend an appropriate lender for your situation and help you with your business loan application.
Contact us today for an obligation-free chat! We’ll take the time to understand your business before providing you with appropriate advice. Our focus will be on finding the right asset and equipment loan for your needs from over 60 Australian lenders.