Key changes for FY2023-24
The instant asset write-off incentive is a tax-saving initiative introduced by the Australian Government, which allows eligible businesses to deduct the full cost of certain assets in the year they are purchased, rather than claiming the cost over a number of years.
The Government has announced that it will reduce the small business immediate asset write-off amount to $20,000 for the period 1 July 2023 to 30 June 2024. Businesses with turnover less than $10 million will be able to immediately deduct the full purchase value of assets less than $20,000. Assets greater than $20,000 will need to be placed into a small business pool and depreciated at 15% in the first income year and 30% each year after this.
The previous temporary full expensing rules will cease from 30 June 2023.
Who can access the new scheme?
The new (or updated) instant asset write-off scheme will be available to eligible businesses that have an annual turnover of less than $10 million.
What assets are eligible under the scheme?
As in previous years, the instant asset write-off scheme will apply to all depreciable assets, as long as they are below the $20,000 threshold.
The $20,000 threshold will operate on a per-asset basis, the Federal Budget papers add, meaning “small businesses can instantly write off multiple assets”.
According to the Budget papers, assets valued at $20,000 or more (which cannot be immediately deducted) will continue to be able to 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.
How should I purchase my business asset?
There are a few ways of purchasing a business asset available to you as a business owner:
- Buy Outright – with this method you buy the asset using your own funds in, as you have purchased and own the asset outright then you are able to depreciate the asset.
- Finance – there are several different options available to you:
- Chattel Mortgage: This is one of the most popular finance options, here you take ownership of the asset from the very start, the loan is secured over the asset, and you tailor the loan by choosing the term that suits you – typically it will be up to 5 years. Under this finance type you are able to depreciate the asset.
- Finance Lease: This finance option the lender still owns the asset, but you bear the risk of disposal once the lease is up. Usually, a residual is due at the end of the term when you take ownership. As you do not own the asset you are unable to depreciate it, you are however allowed to claim the lease payments each month.
- Operating Lease: Under this option you never own the asset and you return the asset at the end of the lease term. As you do not own the asset you are unable to depreciate it however as in finance lease you are able to claim the lease payments as paid.
- Hire Purchase: A hire purchase is an agreement between your business and a lender where they purchase the asset at your request and gives your business use of it in return for regular payments. You own the asset at the end of the finance term.
By Antoinette Mosedale, Walshs Senior Private Client Manager | Private Client Team