Are you looking for good news? Well, I have one for you here. The government has extended the instant asset write off till December 31, 2020. This move is in line with the government’s commitment to mitigate the effect of the coronavirus pandemic on businesses and provide economic relief. The policy was first announced in March 2020 and expected to last till June 30, 2020. However, seeing that the pandemic is still raging on and the different double outbreaks in various States, businesses are still under immense pressure to survive the economic downturn and preserve their operations, it is only right that an extension should be announced.
The Instant Write Off scheme has been in operation prior to the pandemic; its purpose is to give eligible businesses the opportunity to claim a certain deduction on the cost of an asset in the first year that the asset is bought, installed, or used. The write-off threshold was set at $30,000 before the pandemic, and eligible companies can write off all depreciable assets costing the business less than the threshold. With the pandemic, the threshold was increased to $150,000. The eligibility for the businesses to qualify before the pandemic was that such a business must have a turnover that is lower than $50 million. This number has been increased to $500 million since the pandemic so more businesses can be eligible.
Thus, for your business to be eligible for the write-off, you must consider four factors. Your business has an aggregate turnover less than the stipulated amount, the date you bought the asset in question, the asset’s price, which must be lower than the threshold, and the date that you first installed or used the asset. However, by January 2021, the threshold would be reduced to $1000 and the turnover to less than $10 million.
The instant asset write-off is not for every asset, and specific assets are not covered. These include assets that would be leased out or are leased out on a depreciated asset lease for a period that exceed 50% of the time, horticultural plants, assets that have been allocated as low-value assets pool by you, software that have been allocated into software development pool, and capital work deduction.
With the increase in eligibility criteria and the extension in time, deduction on purchases can be made at a faster pace now, and business owners can now claim deductions on assets in the same year they purchase the assets. Thus, the amount of tax that businesses need to pay has greatly reduced.
There are also situations where you acquire an asset for both business and personal purposes; in such a case, the percentage of time it is used for business purposes will determine how much write off you will get on it. For instance, if you buy an asset for $100,000 and use it for business purposes, 75% of the time. You would be able to write off only $75,000.
It is believed that this extension will lessen the tax burden on businesses until the economy is able to rebound.