CATS4TAX – Tax Tip #8
What is the Instant Asset Write Off?
Eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used, or installed ready for use. It can be used for multiple assets as long as the cost of each individual asset is less than the relevant threshold, new and second-hand assets. Some assets are excluded or limited.
From 12 March 2020 until 31 December 2020 the instant asset write-off: threshold amount for each asset is $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).
$57,581 for the 2019–20 income tax year.
$59,136 for the 2020–21 income year.
The instant asset write-off is limited to the business portion of the car limit for the relevant income tax year. For example, the car limit is $57,581 for the 2019–20 income tax year. If you use your vehicle for 75% business use, the total you can claim under the instant asset write-off is 75% of $57,581, which equals $43,186.
Depreciation is the allocation of the cost of an asset over its useful life. An amount is deducted each year to represent the asset’s decline in value. General depreciation rules set the amounts (capital allowances) that can be claimed, based on the asset's effective life. To calculate depreciation, you can generally use either the prime cost method or the diminishing value method. Both methods require you to determine the asset's effective life. The ATO has calculated the effective life of particular assets, but these can be varied.
How does this help business?
It allows the business to claim an immediate deduction for the entire capital item, rather than depreciating it for a number of years. It reduces the amount of net profit for the income year, therefore reduces a business’s tax liability.
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