How the $20K instant tax write off can help you beat the system

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The continuation of the $20,000 instant asset write-off is big news for small business.

It’s a great sign of government support for small business but of course, anyone actually working on the front-line knows we need even more backing. After all, with more than 2.1 million businesses in Australia, we are the engine room of our economy. It’s also a tough slog and it’s important for small business to be backed by strong government support.

Although this is a great move, the offer has also caused a huge amount of confusion. At the end of the day this adds up to a lot of hardworking people so far missing out on a genuine tax break which could be helping their small business.

If you’re considering using this tax break before the end of this or next financial year, then its important you know exactly how it works so you have the facts. Why not put more money back in your pocket? If you need it, this is a great time to upgrade your technology to help your small business long-term.

This is a genuine tax break which could help your small business

First off, are you eligible? Australian small businesses with an aggregated turnover of less than $10 million may be eligible for this instant asset write off for items $20,000 or less. This special tax depreciation was first offered on 12th May 2015 and was scheduled to cease on 20th June 2017. However, thankfully, in the 2017 Budget, this was extended a further 12 months until 30th June 2018. At this point the previous $2 million threshold was increased to $10 million, where it currently sits.

We will all wait with baited breath to find out what the next Budget brings but until then it’s crazy not to take advantage while the offer is still on the table.

Here’s an easy to understand example of how it works. Joe is an electrician with a small business he runs with his wife Helen. In addition to the two of them working full-time they employ three people full-time and two part-time. Things are going extremely well for their rapidly expanding business and they’ve been thinking about getting a new car and a centralised computer system (for invoicing and general bookkeeping).

Watch this video to find out more about the $20K instant asset write-off 

They also want each of their employees to have their own laptops to take on the road so everyone can print out invoices on the spot. Their employees have to provide their own mobile phones (although Joe and Helen cover the costs of all business calls). However, Joe’s phone is desperately in need of an upgrade and Helen wants a new smart phone.

  • It is possible for them to buy five new laptops and take advantage of the $20,000 instant asset write off for all of these. This is because each individual laptop costs less than $20,000 each.
  • They will only buy one centralised computer system. However, this will cost less than $20,000 so will be a valid purchase.
  • They can also choose to buy a new printer for the office and claim on this.
  • Their two new smart phones will also be covered. However, if the phones are 50 per cent for business and 50 per cent for personal use, then only half of the full amount of each phone can be claimed.

The $20,000 instant asset write-off is big news for small business

Bigger ticket items can be more complicated. If they decide to buy a purely work car worth more than $20,000 then no amount of this is claimable under this $20,000 scheme. Trading in a car they already own will also complicate things as these transactions are considered separate. So, if they receive $12,000 from the trade-in on their current work car and the purchase price of the new work car is $24,000 this is still considered above the $20,000 threshold (even though they’re only paying out $12,000 in cash).

YOU CAN  use thE $20,000 instant asset write-off multiple times

The amount for the new car would instead be added to the small business pool for taxation purposes. The $24,000 for the cost of the work car would be deducted over time and a deduction of 15 per cent of the cost is allowed in the first year. For every income year after this there is currently a designated 30 per cent deduction allowed.

Does any of this include GST? The cost of the item must be $20,000 or under (inclusive of GST) and even if you are registered for GST and claimed this GST back then your threshold doesn’t include GST.

Remember, it is possible to use this $20,000 option multiple times. However, the cost of each item must be under the threshold and these can include items bought second hand.

If in doubt speak with the small business assist for the Australian government tax office or your trusted financial adviser before making your purchase to ensure both you and your small business will benefit. At the end of the day if it will help your small business and you’ll be saving money, then you’d be crazy not to seriously look into it.

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Why the right technology can boost your business

 

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David Koch
David Koch is a passionate small business supporter, host of Sunrise on Channel 7 and President of Port Adelaide Football club. ‪A long-time small business owner with his wife Libby, his mission for Kochie’s Business Builders is to support small business owners with simple, easy to apply information, tools and resources, and help them succeed in both their business and their relationships.

10 COMMENTS

  1. Hi David,
    I am looking to expand my business into new retail premises, would I be able to use the fitout of the shop to take advantage of the $20k write off.
    Watch you every morning!
    look forward to your reply and thank you for supporting small business!
    Kind Regards
    Wendy Dunn

    • Thanks Wendy! Great to hear from you. David is extremely supportive and passionate about small business. Your fitout should be covered by the $20K write off (it or each large purchase item must be less than this amount). However, before signing a contract or buying anything please check with the ATO or your financial expert on your exact situation to ensure you and your small business benefits. http://www.sba.ato.gov.au/

    • Hi Pau – it would definitely have to be within the same financial year and you wouldn’t be able to make claim until the whole amount was paid off. However, you would be able to claim this under your normal tax. If in doubt speak with the small business assist for the Australian government tax office or your trusted financial adviser before making your purchase to ensure both you and your small business will benefit.

  2. I bought capital investment worth $6k with intention of starting small business. Then I registered for ABN. Am I still eligible to claim or is it meant to be after getting my ABN or registering business name?

    • Dear Francis – sorry but we are not able to give specific financial advice. Theoretically it may be valid if it is within the same financial year. However, please speak with the small business assist from the Australian government tax office here http://www.sba.ato.gov.au/ or your trusted financial adviser or accountant about this. Good luck!

    • Thanks for your comment. It will depend if you are considered a small business by the Australian tax office. This depends on your individual circumstances so you’ll need to check this directly with Small Business Assist http://www.sba.ato.gov.au or the Australian tax office to ensure you’ll be covered for this instant tax rebate. Good luck!

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