Tax planning opportunity via asset write-off increase
The biggest potential tax bonus for small business in the 2019 Federal Budget was the announcement that the instant asset write-off had been increased and offered to more businesses.
The instant asset write-off threshold for small businesses (with an aggregated turnover of less than $10m) will be increased to $30,000 for eligible assets that are first used, or installed ready for use, from 7.30 pm (AEDT) on 2 April 2019 (Budget night).
The extension is until 30 June 2020 – but qualifying businesses have between now and 30 June 2019 to purchase and fully deduct eligible assets up to the $30,000 threshold in this tax year.
This could be mean office equipment, machinery and even motor vehicles can potentially be upgraded between now and 30 June 2019 and be 100% tax deductible.
The original threshold of $20,000 already had been increased to $25,000 from 29 January 2019 for businesses with turnover up to $10m. But from Budget night, the new $30,000 immediate write-off threshold applied to all businesses with an aggregated turnover up to $50m.
To claim the write-off, items purchased must be first used or installed ready for use by the appropriate cut off date – either 30 June 2019 or 30 June 2020.
The new qualifiers, medium sized businesses (with aggregated annual turnover of $10m or more, but less than $50m) only qualify from Budget night.
The current rules general rules regarding accelerated depreciation for small businesses will remain in place. Therefore, assets that cannot be immediately deducted will need to be pooled and depreciated at an initial rate of 15% in the first year and 30% in each subsequent year.
However, small business depreciation pools valued under the instant asset write-off threshold at the end of the income year can be immediately deducted. The current “lock out” laws for simplified depreciation rules, which prevent small businesses from re-entering the pooling rules for five years if they opt out, will continue to be suspended until 30 June 2020.
Medium sized businesses do not have access to the small business pooling rules and will instead continue to depreciate assets costing $30,000 or more (which cannot be immediately deducted) in accordance with the existing depreciating asset provisions in the tax law.
Overall, it’s good news and a great tax planning opportunity that you should discuss with your accountant between now and 30 June as part of your annual business review.
