As we approach tax time, we are often being asked about the $20 000 tax deduction. Here are the answers to your questions!
What is the $20 000 instant asset write-off?
The $20 000 instant asset write-off scheme was originally planned to run from 2015 to 2017. However, it will continue to run for the 2017-2018 financial year. Initially, the threshold for claiming this write-off was $2million but it has been raised to $10 million with government claims that this will aid in lowering taxes on small businesses.
If you are running a small business with an annual turnover of less than $10 million, you can claim individual expenses up to $20 000 worth of depreciating assets in each single instant write-off each financial year. This instant deduction is primarily intended for physical assets. You can claim items such as equipment, vehicles, tools, and electronics (computers, phones).
The instant asset write-off, which is part of the simplified depreciation regime, is only available to you if you qualify as a “small business entity”. This means that you need:
- To carry on a business in the current year
- Your aggregated turnover was less that $10million for the previous year or is likely to be less than $10million for the current year
This ensures that you can only utilize the $20 000 write off if you are a small business entity. There are restrictions and stipulations in place ranging from annual turnover to how the purchase was made.
Do your assets qualify?
Here are the questions you need to answer YES to in order to be eligible for the $20, 000 small business tax deduction:
- Are you a sole trader or small business with an ABN?
- Did you make a profit this year? (If your business didn’t make any money, there is nothing to compare the tax deduction against)
- Was your annual turnover less than $10 million?
- Were the purchases made for business use and what were they? (Eg: computer, work vehicles etc.)
- Did you acquire this asset through outright purchase?
If you answered YES to all of these questions you meet the requirements your purchase is most likely eligible.
The deduction scheme excludes a range of assets such as:
- Assets that are leased out for more than half the time on a depreciating asset lease
- Assets already located to a low-value pool
- Horticultural plants, including grapevines
- Capital works
It is important to remember that the deduction only applies to assets used for business purposes only. If a computer is used for personal and business use, you are only able to claim the deduction for the portion that is used for the business.
George acts as a consultant as part of his own business which he runs from home. George meets the qualifications to be considered a “small business entity”.
Last year George purchased a new laptop for his home that cost him $2000. According to his records, he uses the computer 75% of the time for his business and 25% of the time for personal use.
In his tax return, George will be able to claim $1500 (75% of $2000) on his new computer under the instant tax write-off.
We can help
Tax time can be a time-consuming and complex time of year that most small business owners dread. We can help in making you tax time as easy as possible. Contact us now to ensure you make the most of your tax benefits as a small business owner.
This article has been prepared by Ian Moiler Pty Ltd trading as Moiler Partners ABN 22 097 374 420, an Authorised Representative of Count Financial Limited ABN 19 001 974 625; AFSL 227232, (“Count”) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Count’ and Count Wealth Accountants® are trading names of Count. Count advisers are authorised representatives of Count.
The information in this article is for general information only. The article has been prepared without taking into account your personal objectives, financial situation or needs. You should assess whether the information is appropriate for your needs and consider talking to a Count Authorised Representative before making any investment decision. The relevant PDS should be considered before making a decision about any financial product. 31 May 2017.