The Government announced that the $150,000 instant asset deduction has been extended for the next 6 months.
The program was originally expanded from $30,000 to $150,000 up until 30 June 2020 in response to the COVID-19 pandemic. However, The Australian Government has announced that the $150,000 instant asset write off will be extended until 31 December 2020 (into the 2021 financial year).
The threshold applies on a per asset basis. Both new and second-hand assets can be claimed, provided each asset costs less than $150,000. (The exception to this is a car limit of $57,581 which applies to passenger vehicles for the 2019-2020 income tax year.)
Let us use an example of a $100,000 (ex-GST) piece of equipment you would like to buy.
- Purchasing a $100,000 piece of equipment before 30 June 2020 means a $27,500 reduction for your 2020 company tax payable (27.5% being the company tax rate).
- If you purchase the $100,000 asset after 30 June 2020 but before 30 December 2020, you will receive $27,500 reduction for your 2021 company tax payable.
- Should this $100,000 asset be purchased without the current legislation in place, you would still receive $27,500 back, however it would be over a 4 year period (as an example, depending on the type of asset). A reduction in tax payable of $6,875 per year.
The reason this extension over the current and next financial year is so valuable for small business owners, is that it gives businesses the ability to decide which financial year they would like to receive that cash back and benefit their business the most.
Understanding which financial year to make this purchase in and how it will impact your business financially is key. There are specific eligibility criteria that need to be met, seek professional advice from your accountant before any purchases to ensure that these can be met.
You can contact the Small Business Champions for advice on how to better take advantage of these changes with one of our free consultations.