Purchased new or second-hand assets like vehicles, tools or office equipment this year? It’s worth being across exactly how you can recoup some of these costs and come out a winner at tax time.
How does the Instant Asset Write-Off work?
You can put in a depreciation claim for any assets that decrease in value over time. These claims can be made annually on things like vehicles, equipment, tools and more. Usually, for a vehicle that is expected to last ten years, you can claim 10% of its cost each year over the vehicle’s lifetime.
The difference with the Instant Asset Write-Off scheme, is you claim depreciation as a one-off lump sum instead of claiming smaller tax deductions each year. Quite handy for boosting that cash flow!
Although when it comes to filing out your tax return and claiming asset write-offs, be wary - there are some rules around the deductions you can claim. For example, only the business portion of the cost of an asset is able to be claimed, in the year the asset is first used, or installed ready for use.
To claim an asset as an instant write-off, you must be out-of-pocket for the cost (as in, you weren’t reimbursed), it must be an asset that’s directly related to earning your income, and you must have records (keep those receipts!) as proof of purchase.
Who is eligible?
There are eligibility criteria and thresholds that dictate the maximum value you can claim on an asset. The instant asset write-off also changes over time, so it’s worth double checking to make sure your claim is eligible. In some good news, the current threshold per asset (for the period 12 March 2020 to 31 December 2020) has been increased by $30,000, up to $150,000.
The other recent change is that businesses with an aggregated turnover of less than $500 million are also now eligible to claim under this scheme. But, from 1 January 2021 the instant asset write-off will only be available for small businesses with an aggregated turnover of less than $10 million and the threshold will change to $1,000.
Did you know: Tradies and small business fleets have until 31 December 2020 to take advantage of the Federal Government’s $150,000 instant asset write off scheme
How can I benefit from it?
By claiming deductions on your assets, you can reduce your taxable income, reduce your tax bill and increase your cash flow. As good a reason as any to take advantage of the current increased threshold by investing in much-needed business equipment.
What can I claim?
As a self-employed tradie or business owner, there are a range of deductions you can claim, spanning from replacement tools and protective equipment through to professional development and superannuation.
One of the most common purchases claimed under the Instant Asset Write-Off are work vehicles. If you run a business and you purchased a vehicle for less than $30,000 you can claim it under instant asset write-off. Although if it costs $30,000 or more, you’ll need to write it off over the life of the vehicle.
Other items you can claim under the scheme:
Equipment storage (sheds and storage containers) Tradie tools and machinery Signage Air conditioners IT hardware (desktop computers, printers, photocopiers) Shop furniture and fittings Kitchen and other equipment Damaged, obsolete or unusable materials left onsite Bad customer debt
Just remember - to claim deductions, you must keep proper records, including receipts and invoices, to prove that your purchase is directly related to or required for work purposes.
Tip: Work with a professional bookkeeper who can help you keep track of everything