As a small business owner in Melbourne, managing your finances and taking advantage of tax deductions can significantly impact your bottom line. One such opportunity is the Instant Asset Write-Off. This tax incentive allows small businesses to claim immediate deductions for the cost of assets purchased for business purposes. If your business is eligible, the instant asset write-off can be a game-changer when it comes to reducing your taxable income and keeping your cash flow healthy.
At RR Eleven Accounting, we help small businesses navigate complex tax laws and ensure they make the most of available deductions. Here’s everything you need to know about the Instant Asset Write-Off and how your business can benefit from it.
What is the Instant Asset Write-Off?
The Instant Asset Write-Off is a tax incentive available to small businesses that allows them to claim an immediate deduction for assets purchased and used for business purposes. Under the scheme, businesses can immediately deduct the business portion of the cost of an asset in the year the asset is first used or installed, ready for use.
This can include multiple assets as long as each asset’s cost is under the relevant threshold. Importantly, the instant asset write-off applies to both new and second-hand assets, giving businesses the flexibility to claim deductions for a wide range of purchases.
Key Eligibility Criteria
To be eligible for the Instant Asset Write-Off, your business must meet certain criteria:
- Aggregated Turnover: Your business must have an aggregated turnover of less than $10 million. This includes the turnover of any affiliates or connected entities.
- Asset Purchase: The asset must be purchased and first used or installed ready for use during the relevant income year.
- Cost Threshold: The cost of the asset must be less than the relevant threshold. For the 2024–25 income year, this is $20,000.
Example 1: How the Instant Asset Write-Off Works
Let’s look at an example to see how this works in practice:
Jack is a sole trader in Melbourne with an aggregated turnover of less than $10 million. In January 2021, Jack purchased an excavator for $220,000 and claimed the full cost under temporary full expenses.
In August 2023, Jack buys a new bucket for the excavator, costing $19,000. Since this is a cost addition to the previously written-off excavator, and the bucket is under the $20,000 threshold, Jack can claim a full deduction for the $19,000 in his 2023–24 tax return.
Jack also buys a new MIG welder for $4,500, which is delivered and ready for use in May 2024. Since this welder is also under the threshold, Jack can immediately deduct the full $4,500 cost in his 2023–24 return.
Vehicle Purchases and the Car Limit
If you are purchasing a vehicle for your business, there are additional considerations to keep in mind. There is a car limit for passenger vehicles (except motorcycles or similar vehicles), which can impact the amount you can claim.
For instance, if you purchase a passenger vehicle for $80,000 (including GST) and use it 75% for business purposes, the maximum claim under the Instant Asset Write-Off for the 2020–21 income year would be $44,352 (75% of the $59,136 car limit). You cannot claim any excess over the limit under other depreciation rules.
How to Maximize Your Instant Asset Write-Off
To maximize your Instant Asset Write-Off, follow these steps:
- Track Asset Purchases: Make sure to track every asset you purchase and assess whether it qualifies for the instant asset write-off.
- Check Eligibility: Ensure your business meets the eligibility criteria, including the turnover threshold and the relevant asset cost limits.
- Consider Business Use: If you’re purchasing an asset for both business and personal use, you can only claim the business portion. Be sure to calculate your deductible amount correctly.
- Stay Updated on Thresholds: The thresholds for the Instant Asset Write-Off change over time. For 2024–25, the threshold is $20,000. Keep in mind that different thresholds may apply for different income years.
How RR Eleven Accounting Can Help
At RR Eleven Accounting, we understand the intricacies of the Instant Asset Write-Off and how it can benefit your small business. Our team of expert accountants is here to guide you through the process, ensuring that you meet all the eligibility requirements and maximize your deductions. Whether you’re purchasing new equipment, upgrading your vehicle fleet, or adding to an existing asset, we’ll help you make informed decisions and optimize your tax savings.
Contact RR Eleven Accounting
Location: Melbourne, VIC
Phone: 0449719992
Website: https://rreleven.com.au/
Stay ahead with RR Eleven Accounting, your trusted partner in business success!