What is instant asset write-off/temporary full expensing?
Instant asset write-off, and the newer replacement incentive temporary full expensing, are immediate tax deduction schemes for eligible assets. It allows eligible businesses (those with an annual turnover of under $500 million) to claim depreciating assets on their tax return. It can also be used to get a return on existing assets so long as they were purchased and first used within a specific timeframe.
How it works
To help wrap your head around how it works, we’ve created some examples of how different businesses can use the instant asset write-off incentive to acquire much needed assets that are used for business purposes the majority of the time.
Used and installed new or second-hand assets within the eligible timeframe
A normal use of the instant asset write-off incentive is to purchase assets between 2015 and 2020, and first use or install the item between 2020 and 2021:
“In 2018, Esmee purchased a $20,000 forklift to help unload delivery trucks at their warehouse. However, they didn’t find a licensed driver until April 2020, so the forklift was kept unused in storage. Because Esmee’s company has less than $10 million in aggregated annual turnover each financial year, the asset was first used between March 2020 and June 2021, and purchased between May 2015 and December 2020, and the forklift cost falls under the $150,000 threshold, Esmee can claim it as an immediate deduction on their tax return.”
A purchase that exceeds the threshold
Purchases that cost more than the eligible threshold cannot be claimed as part of instant asset write-off, even if the cost of use to the business due to split business/home use is less than that threshold:
“Jimmy’s business has less than $2 million in aggregated turnover, and in 2014, Jimmy purchased a $2000 laptop for personal and office use. He estimates that the laptop will be used 25% for work, 75% at home. The threshold for depreciating assets purchased between January 2014 and May 2015 is $1,000.
Even though the work use percentage of the laptop is only $500 (less than the instant asset write-off threshold), because the total cost is more than $1000, it cannot be claimed at all.”
Purchasing multiple assets
When purchasing multiple business assets, so long as each item is less than the claim threshold, they can all be claimed, even when the entire cost adds up to being higher than the threshold:
“Isra runs a mowing business and acquired clients with acreage, so in February 2019 she purchases two eligible second-hand assets: A $22,000 tractor and a $7000 slasher attachment.
Her business makes less than $10 million in aggregated turnover, so is eligible to claim depreciating assets of up to $25,000 on her tax return. Even though the total cost of these items is $29,000, more than the business is eligible for, that threshold applies to each item individually. Because both the tractor and slasher are worth less than $25,000, Isra claims them both for a total of $29,000.”
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