The $20,000 instant asset write-off is big news for small business

If you’re considering using this tax break before the end of the financial year, it’s important for you to know how it works, and to have all the facts. If you need it, this is a great time to upgrade your technology to help your small business in the long term.

Before you rush out and spend money, you need to know if you are eligible. If you are an Australian small business with an aggregated turnover of less than $10 million, you may be eligible for the instant asset write off for items of $20,000 or less.

Here’s an easy to understand example of how it works:

Tom is a plumber with a small business which he runs with his wife Sue. In addition to them both working in the business, they employ five full-time plumbers and two part-time administration staff. Things are going extremely well for their rapidly expanding business and they’ve been thinking about getting a new van and new software for invoicing and general bookkeeping.

They also want to upgrade each of their plumber’s phones so they can generate invoices on the spot, as well as their own phones.

  • It is possible for them to buy their plumbers new mobile phones because individually, each phone costs less than $20,000.
  • They will buy only one software package and as this will cost less than $20,000 it will be a valid purchase.
  • The phones they plan to buy themselves will also be covered. However if the phones are 50% for business and 50% for personal use, then only half of the full amount of each phone can be claimed.

Bigger ticket items can be more complicated. If they decide to buy a work van worth more than $20,000, then no amount of this is claimable under this scheme. Trading in a van they already have will also complicate things as these transactions are considered separate. So, if they receive $10,000 from the trade in on their current work van and the purchase price of the new van is $25,000, this is still considered above the $20,000 threshold (even though they’re only paying out $15,000 in cash).

The amount for the new van would instead be added to the small business pool for taxation purposed. The $25,000 for the cost of the work van would be deducted over time and a deduction of 15% of the cost is allowed in the first year. For every income year after this, there is currently a designated 30% deduction allowed.

Does any of this include GST? The cost of the item must be $20,000 or less (inclusive of GST), and even if you are registered for GST and claimed this GST back, then your threshold doesn’t include GST.

Remember, it is possible to use this $20,000 option multiple times however, the cost of each item must be under the threshold and these can include items bought second hand.

If in doubt, speak with your MBA adviser before making your purchase to ensure both you and your small business with benefit.