Small Business $20,000 Write-Off
Since Budget Night we have fielded numerous enquiries from clients in relation to the $20,000 asset write-off. This measure was introduced to stimulate small business investment and growth.
Is your business eligible?
We need to first determine if your business is eligible for the concession. In summary, your business and associated entities must have revenue of less than $2,000,000.
What does it mean?
Under the previous rules any assets purchased up to $1,000 were immediately tax deductible. Those assets over $1,000 were subject to a tax deduction of 15% in the year of purchase.
Now assets purchased up to $20,000 are 100% tax deductible immediately. Assets costing in excess of $20,000 are to be deducted (depreciated) over time.
What are the relevant dates?
The new rules will apply from 7:30pm on 12 May 2015 and will continue until 30 June 2017. From 1 July 2017 the threshold will revert back to $1,000.
Other key features of the write-off rules
- The deduction is only claimable in the year when the asset is first used or installed ready for use.
- The asset can be new or second-hand.
- If the asset costs more than $20,000 you can't claim 100% of the first $20,000 and then depreciate the balance. You can only claim it upfront if it is under $20,000.
- The ATO have warned that this concession is not available for assets that are acquired under "artificial or contrived arrangements" - for example, related parties selling their assets to one another and then writing off the value of the assets under the $20,000 limit.
How much tax will you save?
In summary, the amount of tax you will save depends on your marginal tax rate. If you operate as a company, the tax saving is at 30%.
Lotsasparks Electrical Pty Ltd purchases a second-hand ute for $16,000 + GST on the 26 June 2015. The tax savings would be as follows:
Under the previous rules:
- $16,000 x 15% x 30% = $720 tax saving
Under the new rules:
- $16,000 x 100% x 30% = $4,800 tax saving
As noted above, there are specific rules surrounding this concession. Feel free to contact us for further clarification before committing to a major asset purchase.