Understanding the $150K Instant Asset Write off

As part of the first $17.6BN Coronavirus Stimulus Package on March 12, 2020 the Federal Government announced an increase in the Instant Asset Write-Off from $30,000 to $150,000.

But what does an “Instant Asset Write Off” mean?

It means just what it says, you can instantly write off the price of the asset purchased in that tax year. An eligible business can

immediately write off the cost of each asset that costs less than the threshold
claim a tax deduction for the business portion of the purchase cost in the year the asset is first used or installed ready for use.

Instant asset write-off can be used for both new and second-hand assets. Some exclusions and limits apply.

The instant asset write-off eligibility criteria and threshold have changed over time. There are two limits in the 2020 year ($30k and $150k)

You need to check your business's eligibility and apply the correct threshold amount.

Changes from 12 March 2020

As part of the first Coronavirus Stimulus Package the increase of the threshold applies from 12 March 2020 until 30 June 2020. EDIT 9/6/20 - Treasurer Josh Frydenberg has just announced an extension to 31/12/2020.

The new package includes

a threshold amount for each asset increased to $150,000 (up from $30,000)
eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million).

Eligible Business:

Less than $500 million aggregated turnover

Date range for when asset first used or installed ready for use:

12 March 2020 to 31 December 2020 (see note below)

Threshold:

$150,000

Eligible Business:

Less than $50 million aggregated turnover

Date range for when asset first used or installed ready for use:

7.30pm (AEDT) on 2 April 2019 to 11 March 2020

Threshold:

$30,000

IMPORTANT NOTE: For eligible businesses with an aggregated turnover from $10 million to less than $500 million, the $150,000 threshold applies for assets purchased from 7.30pm (AEDT) on 2 April 2019 but not first used or installed ready for use until 12 March 2020 to 31 December 2020.

It is vitally important that you make note not only of the date of purchase but the date that the asset is installed or ready to use

Example 1: Asset purchased but not ready for use

Leslie is a florist and her business required a new van to help expand her deliveries.

Leslie purchased a van for $49,500, which was paid for on 10th March 2020. Under the terms of the contract, delivery of the van was made on 17th March 2020. The van was not ready for use until after the 12 March 2020. At that time, the instant asset write-off threshold was $150,000. Leslie is able to claim the entire cost of the van in her 2020 tax return.

If the van had been delivered before 12 March 2020 and Leslie started to use it at the time of delivery, Leslie would not have been able to write-off the entire cost of the van. This is because the cost of the van cost exceeded the threshold applicable at that time of $30,000.

Exclusions and Limits

There are a small number of assets that are excluded. They include:

Assets that are leased out, or expected to be leased out, for more than 50% of the time on a depreciating asset lease
Horticultural plants including grapevines and
capital works deductions

In addition, if you purchase a car (a passenger vehicle, except a motor cycle or similar vehicle, designed to carry a load less than one tonne and fewer than nine passengers) for your business, the instant asset write-off is limited to the business portion of the car limit of $57,581 for the 2019–20 income tax year. You cannot claim the excess cost of the car under any other depreciation rules.

Example 2: Purchase of a motor vehicle for business purposes – the effect of the car limit for depreciation

Edward and Edna own and run a small irrigation supplies business. On 27 March 2020 the business purchases a luxury car that is designed to carry passengers, for $80,000. The instant asset write-off threshold at the time they first use the car in the business is $150,000.

The cost of the car for depreciation is limited to the car limit at that time. As the cost of the car is above the $57,581 car cost limit for depreciation, the business can only claim an instant asset write-off of $57,581 for the year ending 30 June 2020. The business can't claim the excess cost of the car under any other depreciation rules.

They also decide to update their work ute and the business purchases a ute for $65,000 on 27 April 2020. The ute isn't designed to carry passengers (and has been set up with all the trade tools in the tray) so the car cost limit for depreciation doesn't apply. The business can claim a full deduction of $65,000 as an instant asset write-off.

Working Out Your Deduction

You can claim a deduction for multiple assets as long as the cost of each individual asset is less than the relevant threshold (see table above)

The entire cost of the asset must be less than the relevant threshold, not including any trade-in amount. Whether the threshold is GST exclusive or inclusive depends on if you're registered for GST. Eg if you are registered for GST the maximum asset claim would be $165,000 ($150,000 plus GST)

To work out the amount you can claim, you must subtract any private use portion. The balance (that is the portion you use to earn assessable income) is generally the taxable purpose portion (business purpose portion). While you can only claim the taxable purpose portion as a deduction, the entire cost of the asset must be less than the relevant threshold.

Later Sale or Disposal of Asset

An often-forgotten element of tax deductions of assets is the sale or disposal of the asset.

If you use the instant asset write-off for an asset and then sell or dispose of that asset, you need to include the taxable purpose portion of the amount you received for the asset in your assessable income for that year.

If you use the instant asset write-off for an asset that is later destroyed (for example, in a bushfire or flood) then the amount you receive (such as from an insurance payout) for the destruction of the asset is included in your assessable income.

For more information on Depreciation and Capital Expenses please see here