How to access the ATO’s instant asset write-off without hurting your cash flow
Friday, May 11, 2018/
Tax breaks are few and far between, and the $20,000 instant asset write-off scheme is a ripper. But more than 60% of businesses aren’t fully utilising it, usually due to a lack of funds available. There’s a lot of confusing information about how the scheme works, and what this means for your cash flow. Here’s a transparent, jargon-free guide on how the scheme can benefit your business.
The instant asset write-off scheme is a great opportunity for businesses to purchase work-related equipment, and write it off in one go. It allows you to invest in business assets valued up to $20,000 and decrease your taxable income by that same amount. If a lack of capital is stopping you from taking advantage of this opportunity, a short-term business loan can help.
So how exactly does the Asset Write-Off work?
The $20,000 instant asset write-off can be a huge boost for your business. By using this tax incentive, you can write off the depreciation on work-related asset purchases ‘instantly’ instead of claiming smaller depreciation each year. This means you can spend up to $20,000 on as many assets as you like decrease your taxable income, which means tax payable overall will be lower. You can claim this on tools, equipment, office furniture, air conditioners, work vehicles, IT hardware, signage and more.
Are you eligible?
If your business turns over less than $10 million a year, you can claim the $20,000 instant asset write-off on any business assets valued less than $20,000. This is how the instant asset write-off works: if you purchase a second-hand car for $18,000 and you use it 50% of the time for business purposes, you can claim $9,000, which will come off your taxable income. If you purchase two eligible assets worth $19,000 each, you can claim both of them too.
How can you take advantage without impacting your cash flow?
By purchasing business assets up to $20,000, you are decreasing your taxable income by that same amount. So instead of that money being tied up in assets for years waiting to be claimed as depreciation, you can claim depreciation ‘instantly’ in a one-off claim. This will return your investment into your business’ cash flow by decreasing your table income and tax payable.
Note that the ‘instant’ in this tax break’s name isn’t as immediate as you may think. The instant refers to claiming the depreciation on your assets as a one-off claim, but that doesn’t mean you’ll see the benefit of this tax deduction straight away. This could lead to a cash flow bottleneck, especially if the time between purchasing the asset and receiving the benefits of a lower tax payable extends into years. That’s where a business loan can help. By taking out a short-term business loan, you can avoid a hiccup in your cash flow when you purchase the assets.
An unsecured business loan can help maintain your cash flow between investing in vital business assets and enjoying the benefit of a decreased taxable income. This simple tactic can help you make the most of this fantastic tax scheme and invest in much needed business equipment instead of that same money being trapped in your assets for years. The government extended the instant asset write-off scheme to include next financial year, but there are no guarantees the instant asset write-off will become a permanent feature of the tax system. So if you’ve been thinking about investing in some business tools, now would be a great time to do so.
If you want to take advantage of the instant asset write-off this financial year and you don’t currently have the capital to purchase assets right now, an unsecured business loan can provide fast, short-term finance and ensure you don’t miss out on this tax break before the end of the financial year.
What assets are eligible?
Assets eligible for the $20k instant asset write-off scheme include:
- Work vehicles
- Tradie tools and machinery
- IT hardware (desktop computers, printers, photocopiers)
- Office, studio and shop furniture and fittings
- Equipment storage (sheds and storage containers)
- Kitchen equipment
- Air conditioners
So, what next?
You need to claim the instant asset write-off the same year you purchase the assets or install them for use in your business. So, if you want to take advantage of the scheme this year, you need to purchase the assets and submit your claim before June 30. If you need help with working capital before then, allow some extra time to apply for a loan.
Before you invest in assets, it’s a good idea to speak to your tax accountant to check that this tax incentive is right for your business. If you need some help with working capital to make the most of this tax incentive, a short-term loan can help you investment in your business assets without the problems of cash flow restrictions while you wait for your tax return.