Instant asset write-off: is your business eligible?

Remember temporary expensing, which allowed just about every business (unless annual turnover was at least $5 billion) to immediately write off the cost of an eligible depreciating asset? Well, that is no longer available. To use temporary full expensing, you had to acquire and use, or install ready for use, an eligible depreciating business asset by 30 June 2023.

The good news for small businesses is that the instant asset write-off is still available.

What is the instant asset write-off?

Eligible businesses can claim an immediate deduction for the business portion of the cost of a depreciating asset in the year the asset is first used or installed ready for use.

The instant asset write-off can be used for:

• multiple assets if the cost of each individual asset is less than the relevant threshold; and
• new and second-hand assets.

Any small business that uses the simplified depreciation rules can claim the instant asset write-off. A small business is a business with an aggregated annual turnover of less than $10 million. Aggregated annual turnover is calculated by adding up the annual turnovers of your business, connected entities and affiliates. 

The tests for whether an entity is a connected entity or an affiliate are somewhat complicated, but in very general terms:

• a connected entity is an entity which is controlled by your business or controls your business, or an entity that controls both your business and another business; and 
• an affiliate is an individual or company that acts in accordance with your business’s directions or in concert with your business.

The instant asset write-off applies to eligible depreciating assets costing less than the specified threshold (these are called low-cost assets). The threshold amount was originally $1,000, but since May 2015 it has been at least $20,000 and as high as $150,000 (until superseded by temporary full expensing, which ended on 30 June this year).

For the 2023–2024 tax year, the low-cost asset threshold will be $20,000 (this was announced in the May Federal Budget, although it has not been legislated as yet). The $20,000 threshold will apply for 12 months. So to take advantage of the $20,000 threshold, you will need to acquire the asset and first use it, or install it ready for use, between 1 July 2023 and 30 June 2024. 

The $20,000 threshold applies on a per-asset basis, so small businesses can instantly write off multiple assets. 

In certain circumstances, the instant asset write-off also applies to additional expenditure incurred on a low-cost asset. 

The instant asset write-off doesn’t apply to certain depreciating assets, including assets leased out for more than 50% of the time on a depreciating asset lease; horticultural plants, including grapevines; software allocated to a software development pool; assets used in your research and development (R&D) activities; and capital works, including buildings and structural improvements.

Source: www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/Simpler-depreciation-for-small-business/Instant-asset-write-off/ 
www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/Temporary-full-expensing/About-temporary-full-expensing/