How to Take Advantage of the Instant Asset Write-Off Before 30th June 2020
The Background
We have fielded numerous enquiries of late from our clients seeking advice on finance and new equipment purchases prior to the Instant Asset Write-Off limit reducing on June 30 this year. The Instant Asset Write-Off is available for small and medium businesses (with less than $500m turnover) to write-off the full cost of equipment under $150,000 purchased during this financial year. Once June 30 hits, the Instant Asset Write-Off will revert back to $1,000. As a result, we are strongly advising our clients who are considering a purchase, to do so prior to June 30th 2020 to take advantage of this tax benefit.
What are the Benefits of Utilising the Instant Asset Write-Off?
By taking advantage of the Instant Asset Write-Off, you can claim the full depreciation in this year, even if you only own the asset for a few days and get your GST back.
Parameters around claiming the write-off include
- Multiple assets can be written off in the one year;
- Items can be new or used;
- Assets must be first used, or installed and ready for use, by 30 June 2020; and
- Cost of asset can’t exceed $150,000.
AAG in Action
Consider the example of John who owns his own plumbing business. In March 2020, John is planning to purchase a new vehicle for his business valued at $28,000. He’s also thinking about buying a new trailer for $15,000. Both will be used for business purposes. We would recommend to John to finance both purchases over a 5-year term with each purchase secured by the respective piece of equipment with no balloon payment (residual) at the end of the five years.
The tax benefit looks like this:
| Vehicle Cost | $28,000 |
| Trailer Cost | $15,000 |
| TOTAL Equipment Cost (all deductible) | $43,000 |
| Less GST Refund (1/11) | $ 3,909* |
| Instant Write-Off | $39,091 |
| Tax Saving at 27.50% (company tax rate) | $10,750* |
| Net cost after tax in year 1 | $28,431 |
Assume the current car finance rate is 4% per annum and trailer finance of 5% per annum.
The monthly repayments worked out like this:
| Vehicle Finance: | $530 per month |
| Trailer Finance: | $293 per month |
| Total Finance cost per month: | $825 per month |
In the end, the tax and GST savings totalling $14,659* are the equivalent of nearly the first 18 months of your finance repayments.
The Result
Making the Right Financial Decision to Take Advantage of Tax Breaks
From a business cash flow perspective, we would encourage John, and our clients, to finance asset purchases against the particular assets being purchased as opposed to cash reserves from the business or personal equity belonging to the directors. Why? Because this way, you can pay off your home loan, school fees or other personal debts that are not tax-deductible. Financing directly secured by the assets allows John to take advantage of the Instant Asset Write-Off and make a more sound financial decision.
Our Finance team also recommends that you get a finance Pre-Approval before you buy so you are better equipped to negotiate a better deal from the supplier.
We are assisting our clients, through our Finance team AustAsia Finance Brokers, to get Pre-Approvals, maximise their tax deductions and GST refunds prior to June 30, 2020. If you are looking to make an equipment purchase prior to June 30 to take advantage of the Instant Asset Write-Off, get in touch with us today. Even for those looking at purchasing an asset over $150,000, we can still assist you with taking advantage of increased depreciation deductions to help you save tax.
For more information, please contact us on (08) 9227 6300 or email at clientservices@ww2.austasiagroup.com, or direct to our finance team, aafb@ww2.austasiagroup.com.
Important information and disclaimer
This publication has been prepared by AustAsia Group including AustAsia Accounting Services Pty Ltd (Registered Tax Agent No 7587 3005) and AustAsia Finance Brokers Pty Ltd (Australian Credit Licence No 385068).
AustAsia Accounting Services Pty Ltd and AustAsia Legal Pty Ltd – Liability limited by a scheme approved under Professional Standards Legislation.
Any advice in this publication is general only and has not been tailored to your circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance, or other decision. Please seek personal advice before acting on this information.
Information in this publication is accurate as at the date of writing, 14 February 2020 and updated 12 March 2020. Some of the information may have been provided to us by third parties. While it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way.
Opinions constitute our judgement at the time of issue and are subject to change. Neither the Licensee nor any member of AustAsia Group, nor their employees or directors give any warranty of accuracy, nor accept any responsibility, for any errors or omissions in this document.
Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.