Things You Need to Know about the Immediate $20,000 Asset Write-Off
If you’re a small to medium business in the eyes of the ATO, there are various concessions available to you. One of the most, if not most beneficial concession, is the increase the threshold in the write off of assets, $20,000 Asset write off. Formerly, if you bought assets under $1000 (excluding GST), you were able to claim the cost in full, but if cost was higher, the law stipulated that the cost of the asset be claimed over a period of years. However, as at 7:30 pm on 12 May 2015 small to medium businesses can write off the entire cost of an asset as long as the cost is less than $20,000 (excluding GST) . To be considered a small to medium business, there are certain eligibility criteria to satisfy, which you can find on the ATO website
Another important note to remember is that the $20,000 limit does not restrict you to one asset. You can purchase multiple assets costing less than $20,000 and still be able to claim the amounts in full as deductions.
An important distinction we feel compelled to make clear is that when we use the term write-off, this does not mean you get $20,000 back as a refund. Write-off is simply another term for deduction, which lowers your income and tax is then calculated on that. In basic terms, the more deductions you have, the lower the income. But we never suggest that you buy an asset for the sake of a obtaining a deduction, our philosophy at Proactive is that if you have a need to buy additional assets than a deduction or write-off is simply a fortunate by-product.
For example, if you were at the top marginal rate – which is 49% – and you bought a car for $20,000, whilst you would be saving $9800, you would have to wear $10,200. At the end of the day, it is a personal preference to choose between saving in income tax or opting to use the $20,000 elsewhere.
What assets are qualified for the immediate asset write off?
The 20,000 immediate asset write-off rules apply to depreciating assets within the financial year when they were first installed or used. A depreciating asset is a type of asset that sees its value decline over time, and can only be used in a set number of years.
Some examples of depreciating assets include desks, tools, carpet, vehicles, and computers, just to name a few. On the other hand, examples of non-depreciating assets are trading stock and land.
A small business can only claim a deduction for depreciating assets that were installed or used within the financial year. It doesn’t matter whether the asset was bought brand new or already used.
What assets are not included?
It should be noted that there are assets that are not qualified for deductions. These are:
- Horticultural plants
- In-house applications that were part of a software development pool
- Assets leased out to other company
- Construction, renovation, or extension of property
Depreciating Assets Valued More than $20,000
Assets that cost more than $20,000 do not quality for an immediate write-off, but they will be added to what is referred to as a general business pool. When first add to the pool, the value of the assets is depreciated at 15% and then 30% of the written down value thereafter. If the value of the pool is below $20,000, you are also eligible to write this off.
Also read: Financial Planning Partner