Instant asset write-off FAQs

Back on March 12, the federal government unveiled a stimulus package worth a cool $17.6 billion to keep the economy and businesses afloat in the face of unprecedented challenges posed by the spread of COVID-19.

Perhaps one of the most significant measures was the increase of the instant asset write-off (IAWO) threshold from $30,000 to a whopping $150,000, in hope of enticing businesses to spend and keep the economy ticking over.

It is important to note that the $150,000 is not a cash hand-out for businesses, but rather a tax deduction that will reduce your overall tax bill.

Now, before you rush out to purchase a new Porsche Cayenne for your business, it is important to note that there are certain items that are ineligible for the full $150,000 write-off, such as passenger cars.

Here we address some of the burning questions you might have on the new IAWO rules and what you can and cannot claim.

$150,000 – a massive increase on the previous $30,000 limit.

Your business must have a turnover of less than $500 million a year. The item(s) must be purchased and first used or installed ready for use in between March 12, 2020 and June 30, 2021.

The $150,000 limit does not apply to cars, but more specifically cars designed to carry passengers.

According to the ATO, the definition of a ‘car’ for tax purposes is a motor vehicle designed to carry fewer than nine passengers and a load of less than one tonne.

However, if you are purchasing a car for your business, you are still able to write off up to $57,581, which is the car cost limit for depreciation for the 2019-20 financial year.

Some quarters of the auto industry are calling on the federal government to increase that limit for passenger cars.

As these vehicles are not passenger cars but designed specifically for work, they are all eligible for the IAWO up to the top $150,000 threshold, as long as they have a one-tonne payload or more.

Both!

The $150,000 is per asset, so if you buy a ute, a van and a small truck that cost under $150,000 each, you can write off the cost of all three purchases.

Yes, as long as you keep the total cost under $150,000

If the eligible vehicle’s purchase price is equal to or over $150K, then the vehicle is automatically not eligible for the IAWO, no matter how much the person paid for the vehicle after trade-in.

According to the ATO: “When you trade a car or any other asset, typically the agreed price of your trade-in is deducted from the cost of your new asset. The sale and purchase of the asset may appear as one transaction.

“There are two transactions, the purchase of a new asset and the disposal of an existing asset. If the purchase price of your asset (irrespective of the amount you were paid for your trade-in) is equal to or more than the relevant threshold, then it needs to be added to the small business pool and can't be immediately written-off.”

If you own a business turning over less than $5 billion a year, and purchase a brand new machine or asset after October 6, 2020 and before June 30, 2022, you can write off the full cost of the item within the first year of purchase under the Government's new 'Temporary Full Expensing' incentive, regardless of the value of the item.

This means a farm business with a turnover of $20 million can purchase a brand new combine harvester worth $600,000 and write it off completely in the next tax return.

However, if the item was purchased prior to October 6, 2020, the rules of the IAWO apply, meaning purchases over $150,000 cannot be fully deducted in the first year. However, business owners can put it in the business pool to deduct over several years.

Under the government’s accelerated depreciation incentive, introduced in March this year, businesses with turnover of less than $10 million can deduct an amount equal to 57.5 per cent of the asset in the 2019-20 financial year instead of the previous 15 per cent.

If your business has a turnover of over $10 million but under $500 million, you can deduct 50 per cent of the asset in this financial year.

However, it is important to note in this case that the vehicle must be new and not used, if you are claiming the accelerated depreciation deduction instead of the IAWO.

Yes, but you can only claim the proportion that will be used for business purposes. For example, if you purchase a work truck for $100,000 but will only be using it 50 per cent of the time for business purposes, then you can only claim a deduction of $50,000.

Note that these FAQs do not constitute financial advice and you should speak to your own tax accountant if you have specific questions about your circumstances.