$25,000 small business asset write-off

Posted 3 Apr '18

Update 4 February 2019: “Prime Minister Scott Morrison has pledged to increase the small business instant asset write-off to $25,000 from $20,000.”  Available until 30 June 2020.

More information on the increase here.
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Here’s our take on how to get the most value out of this incentive for your small business.

Who gets this?

All small businesses with turnover up to 10 million dollars.

What qualifies as an asset deduction?

All depreciating assets (new and second hand!) are eligible, this includes items such as:-

• IT Hardware – computers, printers, laptops, tablets, phones etc
• Vehicles
• Tools & Equipment
• Shopfront assets – signage, display screens, air conditioners, furniture/fittings
• Work sheds

There are some capital items it does specifically exclude (as they are covered under different legislation):-

• Horticultural plants
• Capital works & building improvements
• Assets allocated to a low-value pool or software development pool
• Primary production assets for which the entity has chosen to use the normal depreciation rules rather than the simplified depreciation rules; and
• Assets leased out to another party on a depreciating asset lease.

Does this mean I will get $25,000 back?

No.

What this means is that you will receive an additional tax deduction up to the value of the asset. For example, if your taxable income was estimated to be $25,000 for the year and you went and purchased a piece of equipment for $25,000; that would leave you with taxable income of $0 in the year of purchase.

Two key points from this:-

• You need to purchase the item of equipment and have it installed ready for use OR the equipment needs to be financed with you as the ultimate owner…you have to physically pay the money
• If you are already in a tax loss position (i.e. have not paid any tax and not estimating you will have to pay any tax this year); the purchase of a piece of asset will only increase your loss position…you will not physically receive any cash back.

What happens if I buy a piece of equipment for more than $25,000?

There is a little misconception out there that if the piece of equipment costs more than $25,000; you will be entitled to claim the $25k amount and the rest is then pooled.  This is incorrect.

If the costs exceeds $25,000, this asset must be included as a Small Business Pool asset and you will receive a 15% deduction in year 1 and 30% in the following years.

However, if for some reason, your pool balance goes below $25,000 in either the 2017 or 2018 tax years, you will be entitled to claim the balance of that pool in that year.

GST Inclusive or GST Exclusive?

If you are registered for GST, then the GST exclusive amount is the cost of the asset (for example, asset total cost is $22,000, you would claim GST of $2,000 leaving cost of asset being $20,000 = eligible for instant claim).

If you are not registered for GST, then the GST inclusive amount is the cost of the asset (example, asset cost is $26,000, no GST claim to make, cost of asset is $26,000 = not eligible for instant claim).

Why would I do this?

Good.Question.

Our recommendation for using this incentive should be based on purely on whether your business needs the new asset.

Don’t get us wrong, we love a tax incentive as much as the next guy but our advice is really based on only investing in equipment that your business needs and that will add value to your operations.

If you can answer YES to this, then you should consider taking advantage of this incentive.  There are some tips and tricks to timing depending on your 2017 results vs 2018 results and how it will impact your cash flow so if you want some more info on this, please contact Luke or Beth on 07 3117 3736 and we will help you out!

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