Tax breaks for the 2020 tax return

Tax breaks for the 2020 tax return

Instant asset write-off

Businesses can claim an immediate deduction (the instant asset write-off) and reduce the tax payable when buying business assets such as machinery, cars, delivery vehicles, office furniture and display cabinets. The instant asset write-off is also available for second-hand assets (but not where you dispose of an existing asset and then buy it back).   

Cost caps apply depending on when the asset is first used or installed ready for use – see below.

For businesses claiming GST, the tax write-off cost excludes GST.

For businesses not claiming GST, the tax write-off cost includes GST.

Small businesses (total turnover less than $10 million)

The cost caps for a small business are:

Date asset first used or installed ready for use                  Cap (asset must cost less than)
1 July 2019 – 11 March 2020 $30,000
12 March – 30 June 2020 $150,000

Note! If the asset is a car, the instant asset write-off is limited to the business portion of $57,581 (the car depreciation limit – this will increase to $59,136 from 1 July 2020).

Tip! Always talk with your tax adviser before buying any business assets. In particular, the timing of when you first used an asset, of first install it ready for use, is important.

Example

Jane owns a café which is a small business. In January 2020 she bought a new fridge freezer for $7,500 and a new espresso machine for $3,400. They are installed ready for use on 24 January.

Jane can take advantage of the instant asset write off for both items because each one costs less than $30,000.

In April 2020 Jane buys a new van for $43,650, which she immediately starts to use in the business. She can take advantage of the instant asset write off for the van because it cost less than $150,000. If she had bought and started using the van before 12 March 2020, the instant asset write-off would not have been available.

Note!

  • You can use the instant asset write-off multiple times. However, each asset must cost less than the relevant cap.
  • If you are thinking of buying assets for your business, you should consider doing before 1 July this year or if timing is better before 31st December when the instant asset write-off threshold is due to revert to $1,000. We will not be surprised if the Government extends the higher threshold (e.g. $30,000) beyond 1 January, although you cannot rely on that happening.
  • The general pool closing balance if less than $150,000 will automatically be written off. Therefore many small business general pools will be written off this year and there is no choice. With a potential downturn in business due to COVID19, you may want to delay purchases until after July 2020, especially if your pool write off reduces your income very low or creates a loss in 2020.
  • Talk to your tax consultant for any specific advice

Ref: TaxWise Business June 2020

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