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Instant Asset Write-Off – What’s In It For You?

The $20,000 instant asset write-off has significantly impacted small and medium-sized enterprises (SMEs) in Australia. Since its introduction by the Australian government in 2015, this policy has seen multiple revisions and extensions, allowing SMEs to invest in their businesses and bolster economic growth.

The temporary full expensing rules, which allowed for an immediate deduction of the full cost of assets acquired from 6 October 2020, concluded on 30 June 2023. Although the instant asset write-off threshold was set to revert to $1,000 starting 1 July 2023, the Government introduced a Bill to Parliament proposing amendments to maintain a $20,000 threshold for small business entities for the 2024 income year.

On 14 May 2024, as part of the 2024–25 Budget, the government announced plans to further enhance cash flow and reduce compliance costs for small businesses by extending the $20,000 instant asset write-off for an additional 12 months, until 30 June 2025. This extension builds on a measure previously announced in the 2023–24 Budget for the 2023–24 income year.

As the end of the 2024 financial year approaches, has your small business leveraged these benefits?

The Rules

For a small business entity to access the instant asset write-off threshold of $20,000 in 2024, the following conditions need to be satisfied:

  • Business Activity: The entity must be actively conducting business under general principles during the 2024 income year.
  • Turnover: The entity must have an aggregated annual turnover of less than $10 million. Such entities can immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed and ready for use between 1 July 2023 and 30 June 2025. This can be based on either current or previous year figures.
  • Simplified Depreciation: The entity must choose to apply the simplified depreciation rules for the 2024 year.
  • Asset Cost: The asset must cost less than $20,000. Assets valued at $20,000 or more, which cannot be immediately deducted, can be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% in each subsequent income year.
  • Usage: The asset must be first used or installed and ready for use for a taxable purpose between 1 July 2023 and 30 June 2025.

It is important to note that if a small business entity does not choose to apply the simplified depreciation rules for the 2024 income year, then it won’t have access to the instant asset write-off rules, regardless of whether the other basic conditions can be met.

The write-off threshold applies per asset, so a small business entity can potentially deduct the full cost of multiple assets across the 2024 year as long as the cost of each asset is less than $20,000.

Strategic Planning

The increased instant asset write-off threshold also means that a $20,000 threshold applies for the purpose of determining whether the full pool balance is written off in the 2024 income year. Just remember that when you are applying these rules you don’t actually look at the closing pool balance; you are looking at what the pool balance would have been if you ignored the current year depreciation deductions for the pool for the 2024 year.

The provisions that prevent small business entities from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended until 30 June 2024 (the lock-out rules).

Eligible Assets

The instant asset write-off rules only apply to assets that fall within the scope of the depreciation provisions. Expenditure on capital improvements to buildings that fall within the scope of the capital works rules do not qualify.

Assets with a cost of $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business general pool and depreciated at 15% in the first income year and 30% each income year thereafter.

How Mint Money Can Help

Navigating tax regulations and making the most of available incentives can be complex. At Mint Money, we understand the challenges faced by small businesses and are here to help you make informed financial decisions. Our team of experts can guide you through the eligibility criteria, application process, and strategic planning to maximise the benefits of the instant asset write-off.

Whether you’re planning to upgrade your equipment, invest in new technology or expand your business operations, leveraging the $20,000 instant asset write-off can significantly enhance your financial strategy. Let Mint Money be your partner in achieving sustained growth and success. Contact us today to learn more about how we can assist you in making the most of this valuable opportunity.

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