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What you need to know about the instant $20,000 tax write off

What you need to know about the instant $20,000 tax write off

The countdown is on. When the 2018 Budget was announced and the ATO extended it’s $20,000 instant asset write off to 30 June 2019, small business owners around the country rejoiced.

Why?

Because the simplified depreciation method has made it easier than ever to reduce your taxable income and get money back on assets.

First introduced in 2015-16 the ATO initiative provides an instant asset write-off opportunity for small business. Businesses can immediately claim back each asset that costs under $20,000 for the tax year the item was purchased. Sound good? It is.

The initiative has been a god send to many small businesses who have made the most of the generous scheme. Each item whether new or used under $20,000 can be claimed - making it ideal for start-ups, expansions and...well basically any business needing to add machinery, software, technology, tools or anything else that aids in creating profit to the business.

The scheme is particularly great for helping businesses get out of the vicious cycle of having cash tied up in assets for years, then having no capital to reinvest in the business. With the incentive offering the opportunity to invest in the business and claiming the cash back that financial year.

Who’s eligible?

Prior to the change in 2015 the write-off threshold was a mere $1000, with the eligibility capped at businesses turning over less than $2 million per year. Now the earning cap has been increased to small and medium businesses turning over up to $10 million, extending the already generous scheme to a much wider market.

At the time of the initiatives announcement in 2015, then Australian Treasurer Joe Hockey commented "If you run a cafe, it might be new kitchen equipment, or new tables and chairs...If you're a tradie, it might be new tools or a computer for the home office.”

"Cars and vans, kitchens or machinery ... anything under $20,000 is immediately 100 per cent tax deductible."

While the tax break has been working wonders for many, research shows that up to two-thirds of business owners aren’t using the incentive to its full potential. The main reason for this?

Many business owners struggle with cash flow and don’t have the capital on hand to invest in assets. A small business loan can be a great way to create the capital needed to invest wisely and make use of the tax break. Given FY 18/19 is the final year of the scheme this is an option business have been seriously embracing.

Multiple write-offs

One of the best parts of this initiative is that you can write off multiple assets up to $20,000 each - not to be confused with multiple assets with a combined value. When it was introduced in 2015 many people were under the wrong assumption that the $20,000 was the total threshold rather than the total for one asset.

What can you write off?

Anything that contributes to, or partly contributes to your profits. Some items include:

  • Tradie tools
  • Hospitality equipment
  • Software
  • Office furniture
  • Shop fittings
  • Computers and hardware
  • Vehicles
  • Machinery

Is there a catch?

As with anything to do with tax it’s best to always seek advice from your financial advisor or tax accountant. Also for those hoping to find loopholes, the Government cracked down from the outset and were right on to anyone trying to double-dip and depreciate the asset multiple times. Don’t be foolish, stick to the rules to make the most of it!

Disclaimer: Information is of a general nature. Please consult your Account or Financial advisor for advice.

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