So what does ‘immediately deducted’ actually mean? Firstly, it doesn’t mean the Toyota Hilux you purchased for $19,999 will come with a cheque from the ATO with a $19,999 refund. In accounting terms – when a business purchases an asset there are rules surrounding the timing that expenses can be claimed against business income through a depreciation process. Immediately deducted assets hold exception to this process and can be deducted from any income a business receives during that financial year rather than being spread over several years.

How can your business make use of the $20,000 instant asset write-off? Some general tips and traps:

For most Small Businesses cash flow is a priority and the question should be raised whether spending money on an asset outright or through finance will increase the income potential of your business.

Where your business is running at a considerable operating tax profit the availability of the instant write off on purchases may be of advantage to reduce your net profit and reduce your tax. You may need to talk with your accountant to see where your business stands in this regard and if a tax deduction will actually be of benefit to you as your business may already be running at a loss.

Unnecessary debt chasing a tax deduction can sometimes backfire as the future can often be uncertain. Ensure this is weighed into consideration as well as the fact current low interest rates aren’t permanent.

Beware of exceeding the $20,000 cost limit. An asset may initially cost less than the threshold, but you need to take into consideration things such as stamp duty, installation costs, and costs which improve the asset that may push the total cost above $20,000 as these are elements of an assets cost base.

Understand how your business is travelling during the financial year and whether you will remain a ‘Small Business’ for tax purposes. A small business is one which has aggregated income (not including expenses) of less than $2 million during the financial year. If your business is on track to exceed this threshold you may no longer be entitled to small business concessions and the instant asset write off.

The $20,000 instant asset write-off can be of great advantage for small businesses, but understanding where your business is at before a purchase can be the difference in the actual benefit you receive. Be sure to talk with your accountant at Optima Partners for further guidance.

For more information visit the ATO website

RICK FILOCAMO

Accountant – Optima Partners