The main small business focus in the 2024-25 federal budget is extending the $20,000 instant asset write-off for another year.
This extension will enable SMEs to immediately benefit from tax savings on new assets until June 2025.
This means you can claim an immediate tax deduction for many of your business purchases, freeing up cash flow to invest in growth. How will this updated write-off work? Let’s break down the details and how this benefits you.
What is the Instant Asset Write-Off?
Imagine buying a new computer for your business. Typically, you wouldn’t be able to deduct the entire cost immediately from your taxable income. Instead, you’d depreciate it over several years.
The instant asset write-off scheme changes that. If your business has a turnover under $10 million and you purchase an eligible asset costing less than $20,000, you can deduct the entire cost from your taxable income in the year you first use it. This significantly reduces your tax bill and frees up cash for other business needs.
Eligible businesses can claim an immediate deduction for the business portion of the cost of an 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
- new and second-hand assets.
If you are a small business, you need to apply the simplified depreciation rules to claim the instant asset write-off. It cannot be used for assets that are excluded from those rules.
The instant asset write-off eligibility criteria and threshold have changed over time. You need to check your business’s eligibility and apply the correct threshold amount depending on when the asset was purchased, first used or installed ready for use.
What Does the Extension Mean?
Previously set to expire in June 2024, the extension allows you to claim the instant asset write-off on qualifying purchases made between July 1, 2023 and June 30, 2025. So, if you’ve bought equipment, furniture, or technology under $20,000 within this timeframe, you can claim it on your tax return.
Maximizing the Benefit:
The beauty of this scheme is that the $20,000 threshold applies per asset. This means you can write off multiple purchases throughout the year, as long as each one stays under the limit. Need a new printer and a software upgrade? As long as they’re both under $20,000, you can claim them both!
What About Assets Over $20,000?
Don’t worry, you don’t lose out entirely on larger purchases. Assets exceeding $20,000 can still be added to your small business depreciation pool. These depreciate at a rate of 15% in the first year and 30% in subsequent years, allowing you to gradually claim the cost as an expense.
A Note on Approval
While included in the budget announcement, the extension still needs to be officially legislated by Parliament before June 30, 2024, to be effective for the current financial year.
The Takeaway
The extension of the instant asset write-off scheme is a significant win for Australian small businesses. It provides much-needed tax relief, allowing you to invest in essential equipment to grow and thrive.
Here’s how you can take advantage:
- Review your recent purchases: Check your accounts for any eligible equipment, furniture or technology purchases made between July 1 2023 and June 30 2025 (assuming legislative approval).
- Plan your upcoming investments: Consider scheduling equipment upgrades or technology purchases within the extended timeframe to maximize the tax benefit.
- Talk to your accountant: They can help you determine which assets qualify for the write-off and ensure you claim the deduction correctly on your tax return.
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