The increased instant asset write-off from $25,000 to $30,000 comes as great news to all small business owners who want to invest more in growing their business. However, before we start ticking off a shopping list, there are some traps of the write-off that we should be aware of to avoid any future issues. So here are our top 3 traps of the instant asset write-off you need to look out for when purchasing assets.
The $30K write off only applies to assets purchased after 2nd April
Although it would be awesome if we could immediately start claiming the write off against all the stuff we purchased for our businesses this year, unfortunately, we can’t. Whilst the Senate has legislated the bill that allows a small business to fully deduct assets costing less than $30,000, it can only be applied to assets purchased after budget night 2nd April 2019.
However, assets purchased before 2nd April and after 29th January can claim the $25,000 instant asset write off. Assets purchased before 29th January are eligible for the $20,000 write off that was enacted on 1st July 2018. So, basically all three write-offs are still active but each write-off is only applicable depending on your date of purchase.
2. How does the ‘instant write-off’ work and what assets are eligible?
With regard to the write-off, the ‘instant’ part of it means that your business can claim a full tax deduction for any asset that costs less than $30,000, which was purchased and used (or ready to use) in the same financial year. The deduction is claimed in the business tax returns.
As far as eligibility goes, the write off is only applicable on certain depreciable assets, so it’s really important to check with an account or tax advisor before you make any purchases. For example, some assets such as horticultural plants and assets leased to another party on a depreciating asset lease don’t qualify. While on the other hand, things like patents, software and online services for websites can be claimed.
In addition, you need to make sure there’s a connection between your purchase and the business to claim the full write off. For instance, if I ran a salon and purchased an oven which has no relevance to my business, I wouldn’t be able to claim the write off.
3. Make the most of the write-off with smart purchases
While the idea of claiming the instant write off against your businesses purchases sounds amazing, we should also keep in mind that we need to spend money first on the purchase before we can claim a tax deduction in our tax returns. If you’re anything like me, you want to make the most of every cent you spend on your business, no matter what it is.
So always invest in things that give your business long-term benefits instead of quick, short-term gratification. Invest in a small van if your business requires products/services transported, or upgrade your current website to attract more potential customers. As the authorised digital specialist for small businesses in NSW, Netstripes has several options that you can consider which are all focused on growing your business including creating tailored digital strategies for businesses to complete website overhauls and accelerated social media marketing.
There’s a lot to look forward to with the instant asset write off and most of us are excited to be able to further invest in the growth of our business. With digital services taking the lead for investments, this seems the perfect opportunity to enhance your digital presence with strong branding and an upgraded website that offers long-term benefits. Keep a look out for these 3 traps of the instant asset write-off. Whatever you opt to do, seek the advice of professionals first to ensure that the investment has long-term benefits for you.
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Please speak to your tax accountant for all tax and investment related advice. Information provided above does not constitute advice.