Instant asset tax write-off

In response to the COVID-19 pandemic, the Federal Government introduced and then extended instant tax write-offs for businesses. Businesses can now deduct the full cost of eligible assets upfront, instead of spreading the cost over several years. Businesses with a turnover of less than $5 billion are eligible.

What is the instant asset write-off?

An instant asset tax write-off allows your business, if eligible, to claim a tax deduction for depreciating assets used for business purposes.

Following the 2021 Federal Budget, the asset write-off scheme was extended, removing the previous $150,000 cap.

You can claim a write-off, no matter what the cost of the asset, so long as it is used for business purposes. This is called temporary full expensing (TFE). There are some exceptions to the type of asset you can write off.

Currently:

• Any Australian business with a revenue of less than $5 billion can take advantage of temporary full expensing.
• It is valid for assets purchased for business purposes on or after 6 October 2020.
• You can claim the deduction when lodging tax returns for 2020-21 or 2021-22.

The idea behind TFE is to allow businesses to make investments now, instead of at a future date. These measures have been taken as a means of stimulating the economy in the face of the pandemic.

Which assets are eligible for temporary full expensing?

To be eligible for temporary full expensing, your business must have a turnover of less than $5 billion. Additionally, your assets must be:

• New or second-hand. Expensing of second-hand assets is only available to businesses with a turnover less than $50 million.
• First held by you on or after 7.30pm AEDT on 6 October 2020.
• First used or installed ready for use for a taxable purpose (such as a business purpose) between 7.30pm AEDT on 6 October 2020 and 30 June 2022.

This includes most assets bought for business purposes, including office furniture, office tools, plant and equipment, fixtures and fittings, computers and laptops, EFTPOS systems, security equipment, solar systems, and motor vehicles such as utes, delivery vans and most cars.

There are car limits for each financial year. For 2020/21, it's $59,136. For 2021/22, it's $60,733.

However, there are a number of exceptions to the type of assets you can write off. This includes assets which are:

• Allocated to a low-value pool or a software development pool.
• Primary producing assets, including water facilities, fencing, horticultural plants or fodder storage assets. There are some exceptions for small businesses.
• Buildings and other capital assets for which you can make deductions under Division 43.
• Not, or which will never, be located in Australia or not used for business purposes in Australia.

You can also claim an immediate deduction of the cost of any improvements to an eligible business asset if it is made before 30 June 2022. This can include improvements to existing assets purchased before 7.30pm AEDT on 6 October 2020.

How can I work out my tax deduction?

If you've purchased an asset in the eligible business year (2020-21 or 2021-22), you can write off the cost of the asset in question. This includes the cost of improving the eligible asset incurred in that year.

If the asset is used for both business and personal purposes, you can only write off the cost in relation to its business purpose.

If you've purchased an asset before the eligible business year, but you've made some improvements on it during the eligible business year, you can get a tax break for the improvement made.

If your business has a turnover of less than $50 million, you can deduct the cost of second-hand assets too, so long as it was acquired after 6 October 2020. If your business has a turnover of more than $50 million, you cannot claim it under temporary full expensing.

If your eligible asset undergoes a balancing adjustment event, i.e. if you no longer hold the asset by selling it, or stop using it and won't use it again, you cannot deduct its cost under temporary full expensing.

To find out more about how your asset can be deducted, you can refer to the ATO's page on temporary full expensing.

What are the dates for asset cost thresholds?

What information will I have to supply for my claim?

You'll need to include the following information in the additional labels on your tax return form:

• Whether you're opting out of temporary full expensing for some or all of your eligible assets. This will include the number of assets you're opting to deduct, and those you're not.
• The total amount of your temporary full expensing deduction.
• The number of assets you're claiming temporary full expensing for.
• Information about your aggregate turnover.

All businesses will have to hold an ABN or ACN to be considered.

With instant asset write-offs, your business can bring forward future investments and have their costs written off entirely. Be sure to check the list of eligible assets before investing. If you're investing in a new car, you should keep in mind that there is a car limit. If you're unable to make a claim under temporary full expensing, check if you're eligible for the $150,000 instant asset write-off instead.

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