As a business owner, it’s important to take advantage of any opportunities to reduce your tax liability and improve your bottom line. One such opportunity that has been available in Australia for several years is the Australian Taxation Office (ATO) instant asset write-off.
From 7.30 pm (AEDT) on 6 October 2020 until 30 June 2023, the ATO’s Instant Asset Write-off Temporary Full Expensing (TFE) Initiative has been in place allowing eligible businesses to claim an immediate deduction for the full cost of a business asset in the financial year it was first used or installed ready for use rather than having to depreciate the cost over several years.
Since its introduction, the Instant Asset Write-Off Temporary Full Expensing measure has provided a significant boost to Australian businesses, fuelling investment and economic growth. However, with the expiration date of June 30, 2023, fast approaching, businesses must act swiftly to take advantage of this generous tax incentive.
Before the Instant Asset Write-off program was introduced, you would need to depreciate a portion of the cost each year over several years. For many assets, this was four years. So if you purchased an asset for $50,000, you could only deduct $12,500 each year for four years under depreciation rules determined by the ATO.
Benefits of the Instant Asset Write-Off TFE
- Tax Savings And Improved Cash Flow: By immediately deducting the full cost of eligible assets, businesses can significantly reduce their taxable income, resulting in substantial tax savings. This measure enhances cash flow by reducing tax liabilities and allows businesses to allocate and free-up funds towards other critical areas such as expansion, innovation, or debt reduction.
- Modernizing And Upgrading Business Operations: The instant asset write-off temporary full expensing has encouraged businesses to invest in modernizing their infrastructure. From adopting advanced machinery and equipment to embracing digital technologies, businesses can enhance operational efficiency, improve productivity, and gain a competitive edge in the market.
- Job Creation And Economic Stimulus: Increased investment through the instant asset write-off temporary full expensing directly translates into job creation. As businesses acquire new assets, they often require additional staff for their operation and maintenance. This job creation helps stimulate economic activity, reduce unemployment, and contribute to overall economic growth.
- Business Resilience And Long-Term Growth: By taking advantage of this tax incentive, businesses can strengthen their foundations for long-term growth and resilience. Upgrading assets and embracing innovation positions businesses to adapt to evolving market demands, streamline processes, and remain competitive in a rapidly changing business landscape.
Key Features and Eligibility Criteria
Under Temporary Full Expensing, Businesses can only write off the portion of an Asset that is used for Business purposes. If A business uses a truck for 100% Business use then 100% of the cost can be claimed but if a business uses a Computer for 50% Business only, they may only claim 50% of the cost. It should be noted that an Asset must be used at least 50% for Business to be considered a Business Asset.
The instant asset write-off temporary full expensing applies to businesses with an aggregated turnover of up to $5 billion. It covers assets acquired between 7:30 pm AEDT on 6 October 2020, and 30 June 2023. It should be noted that “aggregated” turnover includes turnover of any parent companies (including overseas parent companies) and any subsidiaries.
Businesses whose aggregated turnover is more than $5 billion with Australian income of less than $5 billion are eligible, provided their aggregate turnover was less than $5 billion in either 2018/19 or 2019/20, and provided they previously invested more than $100 million in tangible, depreciating assets in the period 2016/17 through to 2018/19.
Temporary Full Expensing applies to new assets that can be depreciated as well as the cost of improvements to existing eligible assets even if the existing assets were acquired before the Temporary Full Expensing scheme started.
Second-hand assets are included under Temporary Full Expensing for Small to Medium sized Businesses with an aggregated annual turnover of less than $50 million while second-hand assets are excluded for businesses with an annual turnover of $50 million or more.
What assets are included?
Assets that are used for business purposes such as:
- Tools, Plant & Equipment
- Commercial Vehicles (Utes with a carrying Capacity of over 1 tonne are also regarded as Commercial vehicles)
- Cars and Some Utes (Asset Write Off for these are capped at $64,741 in 2023 Financial Year, but amounts over that price can be claimed under other depreciation deduction rules)
- Fixtures and Fittings
- Office furniture
- Technology (such as computers, laptops, printers, EFTPOS systems and security equipment)
- Air Conditioners
- Solar Systems
- Motorbikes, Scooters and Boats
- Business Signage
- And more
What assets are excluded?
The main types of Assets that are not eligible for full expensing include:
- Assets that are not used in a business
- Assets located overseas
- Buildings and other assets that are eligible for capital works deductions
- Expensive cars (Under TFE, all cars can only be written off up to $64,741, the current Limit for the 2023 Financial Year)
- Some primary production assets (such as fencing and water facilities) that already have an existing instant write-off scheme in place
Instant Asset Write-Off TFE Timeline
Instant Asset Write-off Temporary Full Expensing will expire on 30 June 2023. This means that Assets purchased must be in use or installed and ready to use by 30 June 2023 to be eligible to claim the full cost of eligible assets.
This means that if Assets have been ordered and paid for but have not arrived on your business premises, they cannot be claimed under TFE.
How to claim the Instant Asset Write-Off TFE
The first chance to claim the Instant Asset Write-Off TFE will be when you have your 2023 Financial Year Tax Return Prepared by your Accountant.
It is important that businesses keep all purchase documentation for any assets they wish to claim.
What to do before the deadline
Here’s what businesses need to do before the deadline:
- Review Business Needs: Evaluate your business requirements and identify areas where investing in new assets can enhance productivity, efficiency, or competitiveness. Consider the potential benefits of acquiring assets that align with your long-term goals and can contribute to business growth.
- Assess Financial Capacity: Evaluate your financial position and determine if you have the resources to make the necessary investments. Consider factors such as cash flow, available funds, and financing options to support asset purchases.
- Explore Financing Options: If you need additional funding to take advantage of the instant asset write-off, explore financing options such as chattel mortgage, leasing, or hire purchase agreements. A Business Finance Specialist will be able to assist you to find the most suitable finance solution for your business.
- Consult With Professionals: Seek advice from tax professionals or financial advisors to understand the specific implications and benefits of the instant asset write-off for your business. They can provide insights tailored to your circumstances and help you make informed decisions.
- Streamline Acquisition Processes: Expedite the acquisition and installation of eligible assets to meet the deadline. Ensure compliance with necessary regulations and paperwork, including proper documentation and record-keeping.
- Plan For Installation And Implementation: Factor in the time required for asset installation, setup, and integration into your business processes. Coordinate with suppliers, contractors, or internal teams to ensure a smooth transition and minimal disruption to your operations.
- Maintain Proper Records: Keep accurate records of asset purchases, including invoices, receipts, and documentation related to the transaction. These records will be essential for tax purposes and if any audits or reviews arise in the future.
- Claim The Deduction: When lodging your tax return, ensure that you correctly claim the instant asset write-off deduction for eligible assets. Consult with your accountant or tax advisor to ensure accurate reporting and compliance with the relevant tax regulations.
If you need to replace, upgrade, or purchase new Assets, now is the best time to take advantage of the government’s Instant Asset Write-Off Temporary Full Expensing Initiative before it expires on 30 June 2023.
Need to purchase new or used business assets? Want to explore your finance options?