Q: I am self-employed operating a franchise Garden maintenance business in my local area. As I purchased the franchise this Financial year, I have spent quite a bit of money on equipment for the business. I assumed that these purchases were depreciable but I have received advice that I can claim 100% of the cost as a deduction. Is this the case?
A: In the 2015-6 Federal Budget, small business owners were provided with a temporary increase to the immediate write-down of certain business assets from a $1,000 limit to a $20,000 limit.
Referred to as the “instant asset write off”, small business owners became eligible to claim an immediate tax deduction for certain business assets acquired after 7:30pm on 12 May 2015, where the value of that asset was less than $20,000, rather than depreciate the asset over a number of years.
Initially, in order to qualify, businesses needed to have had a turnover of less than $2 million, and the offer was meant to end on 30 June 2017. However, on Budget night 2017, the offer was extended to businesses with a turnover of up to $10 million and the deadline extended to 30 June 2018.
The offer has been popular with small businesses. According to the Federal Government, in 2015-6 up to 300,000 small businesses took advantage of the instant assets write off. According to the Federal Minister’s office, more than 50,000 extra businesses made a claim in 2015-6 and the average amount claimed increased from around $4,000 to $9,000.
Generally speaking, the deduction is intended for physical assets such as vehicles, tools and equipment and electronic goods such as computers and phones.
There is no limit to how many assets you can claim the deduction for. However, each asset must cost less than $20,000 and must be bought and used, or installed ready for use, prior to 1 July 2018.
According to the ATO website, there are some assets that are excluded from the scheme such as, assets that are leased out for more than half of the time on a depreciating asset lease, horticultural plants, and capital works.
It is important to note that the deduction only applies to assets used for business purposes. If an asset – for example, a car is split between personal and business use, you can only claim the deduction on the portion that is used for business.
The ATO has warned that they will monitor closely compliance with the rules. Of particular interest will be businesses seeking to fall under the $10 million turnover cap, claims for large transactions broken down into lots of less than $20,000, equipment purchased for personal use but claimed as business use.
Be careful to ensure that when claiming the “instant asset write off” that you don’t “double dip” by claiming depreciation on the asset in future years.
The Institute of Public Accountant has lobbied the government to extend this budget measure beyond 30 June 2018. They claim that bringing the deduction into one year rather than across many years is a timing issue and in line with the standards in overseas jurisdictions. However, at this stage, the deadline remains 30 June 2018.
Provided you are eligible, use it or lose it. It is important that you seek appropriate tax advice from an appropriately qualified tax specialist.