Case Study: $150K Instant Asset Write Off

Case Study: $150K Instant Asset Write Off

The Government is increasing the instant asset write-off (IAWO) threshold from $30,000 to $150,000 and expanding access to include all businesses with aggregated annual turnover of less than $500 million (up
from $50 million) until 30 June 2020. In 2017-18 there were more than 360,000 businesses that benefited from the current IAWO, claiming deductions to the value of over $4 billion.

The IAWO Threshold

The higher IAWO threshold provides cash flow benefits for businesses that will be able to immediately deduct purchases of eligible assets each costing less than $150,000. The threshold applies on a per asset
basis, so eligible businesses can immediately write-off multiple assets.

The IAWO is due to revert to $1,000 for small businesses (turnover less than $10 million) from 1 July 2020.

Eligibility

The Government is expanding access so that more businesses can take advantage of the IAWO. The annual turnover threshold for businesses is increasing from $50 million to $500 million. Expanding the threshold
will mean an additional 5,300 businesses who employ around 1.9 million Australians will be able to access the IAWO for the first time.

Timing

This proposal applies from announcement until 30 June 2020, for new or second-hand assets first used or installed ready for use in this timeframe.

Exclusions & Limits

There are a small number of assets that are excluded. In addition, if you purchase a car for your business, the instant asset write-off is limited to the business portion of the car limit of $57,581 for the 2019–20 income tax year. You cannot claim the excess cost of the car under any other depreciation rules.

Case Study Example

Purchase of a motor vehicle for business purposes – the effect of the car limit for depreciation

Edward and Edna own and run a small irrigation supplies business. On 27 March 2020 the business purchases a luxury car that is designed to carry passengers, for $80,000.

The instant asset write-off threshold at the time they first use the car in the business is $150,000.

The cost of the car for depreciation is limited to the car limit at that time. As the cost of the car is above the $57,581 car cost limit for depreciation, the business can only claim an instant asset write-off of $57,581 for the year ending 30 June 2020.

The business can’t claim the excess cost of the car under any other depreciation rules.

They also decide to update their work ute and the business purchases a ute for $65,000 on 27 April 2020.

The ute isn’t designed to carry passengers (and has been set up with all the trade tools in the tray) so the car cost limit for depreciation doesn’t apply.

The business can claim a full deduction of $65,000 as an instant asset write-off.

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*Some names and identifying details have been changed to protect the privacy of individuals. Source: www.ato.gov.au

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