The 2018-19 Federal Budget has extended the $20,000 instant asset write-off scheme up to 1 July 2019. This enables small business owners with an annual turnover of less than $10 million to deduct the business portion of eligible assets costing less than $20,000. This is great news, especially if you run a restaurant or cafe. Through this guide, you will find out how to apply to write off eligible assets in your tax return. Although best left to your accountant or bookkeepers, you will also learn how to use simplified depreciation rules for the instant asset write-off scheme.
This doesn’t mean you should go and spend $20,000 – this is a misconception. Any business should always evaluate if spending money on assets is suitable to cash flow and needs of the business. However, it does mean that you will get an immediate reduction in your taxable income instead of depreciating it over a number of years.
Who Are Eligible For The $20,000 Instant Asset Write-Off?
Small business owners with a turnover of less than $10 million are qualified for the instant asset write-off. If they buy and use, or install and use, depreciating assets that cost less than $20,000 this income year, most of these assets are eligible for immediate deduction.
What Assets Are Eligible For The Write-Off Scheme?
New or secondhand depreciating assets costing less than $20,000 can be deducted instantly. Even if an asset is traded in, its entire cost must be less than $20,000. The assets must also be bought and used, or installed and used, during the income year you are claiming them in. Let’s say for example that you buy a new passthrough warewasher for your restaurant. The equipment costs $18,000 and is used immediately. This asset is eligible for the $20,000 instant asset write-off. If you buy a secondhand deep fryer that costs $3,000, you can also write it off instantly in your tax return. What if you trade in an old combi oven that costs $35,000 for a new one that costs $50,000? You will pay only $15,000 out of pocket. However, the entire cost of the new combi oven is $50,000. As a result, it is not eligible for the $20,000 instant asset write-off.
How Are Eligible Assets Deducted Through The $20,000 Instant Asset Write-Off?
Only the business portion of eligible assets are deductible. This means you have to subtract any private use portion of the assets. Let’s say that you run a home-based food business. If you buy a commercial upright refrigerator that costs $6,000, this asset is eligible for the $20,000 instant asset write-off. However, the refrigerator is used 30% of the time for personal purposes. Subtracting the private use portion leaves you with 70%. This means you can only claim $4,200 in your tax return. What if you buy a rapid cook oven that costs $22,000? Even if you use it 40% of the time for business purposes, the total cost of the equipment is greater than $20,000. As a result, this commercial kitchen equipment is not eligible for the instant asset write-off.
What Happens To Assets That Cost $20,000 Or More?
Most depreciating assets that cost $20,000 or more are allocated in a small business asset pool. You can claim a 15% deduction in the first year. Each year after that, you can claim a 30% deduction. When the balance of the small business asset pool becomes less than $20,000 at the end of an income year, it can be written off. This holds only to the balance before other depreciation deductions are applied.
What Other Assets Are Excluded From The Instant Asset Write-Off Scheme?
Assets that are leased out, or expected to be leased out, for more than 50% of the time are not included in the $20,000 instant asset write-off. Assets that are allocated to a low-value pool are also excluded. The low-value pool covers low-cost assets and low-value assets. A low-cost asset costs less than $1,000 after deduction of GST. A low-value asset has a value of less than $1,000 after depreciating for one year or more. Its written-down value is determined using the diminishing value method. Besides assets in the low-value pool, capital works and software allocated to a software development pool cannot be written off immediately. Horticultural plants are also excluded from the $20,000 instant write-off scheme.
If you need any advice on asset write off, loans, or where to buy your next asset, contact us and we’ll put you in touch with our referral network.
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