What is it?
Under the instant asset write-off, you can write off the full amount you spend on an asset (used for business purposes) in the financial year you purchased it, giving you a tax deduction for the full cost of the asset immediately.
Before the program was introduced, you would need to depreciate a portion of the cost each year over several years. For many assets, this was four years. So if you purchased an asset for $50,000, you could only deduct $12,500 each year for four years under depreciation rules determined by the ATO.
Originally, the instant asset write-off was limited, with a $1,000 threshold per asset. This meant you could only deduct the first $1,000 of any business asset purchase. In October 2020, the threshold was increased to $150,000 per asset. Later, the threshold was removed, so there’s no limit on the amount you can claim as an immediate deduction for most items.
Other changes included being able to apply to write off the full amounts of used assets and the cost of refurbishing existing assets (for businesses with an annual aggregated turnover of less than $50 million). With these changes, the name was officially changed from “instant asset write-off” to “temporary full expensing”.
The program was designed to stimulate spending and make it easier for small businesses to benefit from asset purchases.
How does it work?
With the instant asset write-off extension in 2023, you reduce your overall taxable income when you purchase or refurbish an asset.
Here’s an example.
Diane owns a manufacturing company. In the 2021/2022 financial year, her business’s revenue was $1.5 million and business expenses were $900,000. With a profit of $600,000, the tax payable would be $165,000 (based on a company tax rate of 27.5%).
Before the end of the year, Diane decided to purchase a new piece of manufacturing equipment costing $250,000. In this case, the business profit decreased to $350,000, and the tax bill decreased to $96,250. By purchasing the asset before the end of the financial year, Diane’s tax bill has decreased by $68,750 ($250,000 x 27.5%).
This scenario applies to all types of medium and small businesses, including sole traders. Business owners simply include the full amount of the asset on their tax return to benefit.
What asset purchases are applicable?
The program applies to all types of assets used for business purposes, including:
- Machinery and equipment
- Fixtures and fittings
- IT hardware – computers, laptops, printers, etc.
- Office and shop furniture
- Motor vehicles (capped at $64,741 in 2022–23)
- Business signage
- Air conditioners.
The instant asset write-off in 2023 applies to almost all business assets, with a handful of exceptions listed by the ATO.
What’s the catch for the instant asset write-off 2022–2023?
While the instant asset write-off was extended to 2023, the end date is 30 June 2023 (unless extended again in the next Federal budget).
Assets need to be delivered and installed by 30 June 2023. So machinery, equipment or other assets need to be installed and ready to use to qualify. If there is a backlog or delay in installing the asset, it won’t be eligible for the full deduction in the 2022–2023 financial year and will need to be moved into the next year (if the program is extended).
With the instant asset write-off end date in sight, many business owners are considering their options to reap the benefits. One of the main challenges for many businesses is finding the funds to make asset purchases. While traditional bank loans can be used to finance assets, the application process can be cumbersome. Also, banks typically won’t lend for some assets, such as used machinery and equipment.
Moula small business loans are one solution that can help businesses get the finance they need to take full advantage of the instant asset write-off in 2023.
Also, check out our business loan calculator for an estimate of total interest and repayments for a range of loan amounts.