Businesses will be able to claim accelerated depreciation on new assets for the remainder of the calendar year under the latest extension to the $150,000 instant asset write-off program unveiled by Treasurer Josh Frydenberg.

After expanding the program from assets worth $30,000 to $150,000 in response to the COVID-19 pandemic in March, the federal government has now extended the deadline for making claims from July 1 to December 31.  Previously the $150,000 write-off was due to expire at 30 June 2020.

What is the $150,000 instant asset write-off?

The $150,000 instant asset write-off allows small businesses (with an annual turnover of less than $500 million) to claim an immediate tax deductions for new or second-hand plant and equipment asset purchases such as vehicles, tools and office equipment.

The assets must first be used, or installed for use, in the income year you’re claiming for – i.e. to claim the $150,000 instant asset write-off for an asset for the 2020 financial year, the asset must be purchased and installed (where applicable) by 30 June 2020.

The instant asset write-off has now been extended to 31 December 2020, meaning eligible assets can be purchased prior to the end of the current calendar year to enable the immediate tax deduction in the 2021 financial year ending 30 June 2021.

How do you calculate the asset write off?

The amount you can write-off will depend on when the asset was purchased and the associated threshold amount. Thresholds and eligible turnovers changed on 12 March 2020, check the ATO website for details.

For example, if your company’s turnover is under $500 million and you purchase an eligible asset for $140,000 (excluding GST) on 1 June 2020 (and install it ready for use by 30 June 2020), then a deduction of $140,000 can be claimed. If the company is subject to a tax rate of 27.5% then this should reduce the tax payable by the company for the 2020 income year by $38,500.

Instant asset write off for motor vehicles (cars)

When calculating the instant asset write-off for a vehicle the deduction is limited to the the motor vehicle cost limit of $57,581 for the 2019-20 financial year and $59,136 for the 2020-21 financial year.

The business use percentage of the asset also needs to be taken into account in calculating the deduction. For example, if a sole trader acquires a car for $40,000 but only expects to use it 80% in the business then the immediate deduction would be $32,000.

If your business is registered for GST, then you do not include the amount of claimable GST for the instant asset write off for motor vehicles.  For example if the vehicle cost $40,000 (100% business use) the amount of GST would be $3,636 and the instant asset write off amount would be $36,364.

The car cost limit also limits the amount of GST that can be claimed, and for the 2019-20 financial year the maximum claimable GST on a motor vehicle is $5,234 (1/11th of $57,581). The maximum claimable amount for motor vehicles purchased after 1 July 2020 (financial year 2020-21) is $5,376 being 1/11th of $59,136.

Luxury car tax also applies for any vehicles purchased over $67,525 during the 2019-20 financial year.  For further information check the thresholds on the ATO website: Luxury car tax rate and thresholds

Please note that the above instant asset write off cost limit only applies to cars which are defined as motor vehicles (including four-wheel drives) designed to carry a load of less than one tonne and fewer than nine passengers. Different rules apply to commercial vehicles designed to carry one tonne or more (utes, utilities, trucks) as well as vehicles such as minivans and buses designed to carry nine or more passengers.

Financing of equipment purchases for the instant asset write-off

For larger asset and equipment purchases we can assist you with finance options through our panel of equipment and motor vehicle finance specialists.

Please contact us or speak to your Quill Relationship Manager for further information.

More Business Tax Planning Tips for Companies, Trusts and Partnerships

As we come out of COVID-19 restrictions its especially critical to squeeze every tax incentive available including the instant asset write-off to ensure your business survives and thrives.

Please also take some time to review the following articles for other business and personal tax planning solutions: