The 2023–24 financial year brought with it a significant small business boost from the Australian Government—a generous increase in the instant asset write-off threshold. This move, announced as part of the Federal Budget on May 9, 2023, was designed to bolster the cash flow of small enterprises and streamline compliance processes.
But what does this mean for small business owners? And how can you leverage this change to your advantage?
Below, our expert accountants unpack the details of the increased threshold. We’ll explore who stands to benefit and provide insights into how you can make the most of this temporary measure. Whether you’re planning to invest in new equipment or upgrade your existing assets, read on to find out how this change could impact your bottom line.
Instant Asset Write Off Extension
For the fiscal period of 2023–24, the Australian Tax Office (ATO) raised the threshold for the instant asset write-off to $20,000. The official announcement came on May 9, 2023, during the unveiling of the Budget for the year 2023–24. The Australian Government took this step to enhance cash flow for small businesses and to simplify compliance requirements. Note that this incentive was always designed to be temporary, extending from July 1, 2023, to June 30, 2024.
Pro Tax Tip: To read more about the 2023-24 budget, click here.
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The initiative targeted small businesses with an aggregated annual turnover of less than $10 million. These businesses will be eligible to immediately write off the total cost of qualifying assets. To qualify, assets must be priced below $20,000 and must be in use or ready for use within the specified timeframe, starting from July 1, 2023, to June 30, 2024.
The benefit of this increased threshold is that it applies to each individual asset. Therefore, small businesses have the opportunity to apply the instant write-off to numerous assets, provided each one meets the criteria.
For assets that are priced at $20,000 or above, which do not qualify for immediate deduction, there is still a provision. These assets can be added to the small business simplified depreciation pool. In the first year of income, these assets can be depreciated at a rate of 15%, and in subsequent years, the depreciation rate will be 30%.
To learn more about depreciating assets and their tax implications, visit our guide to claiming depreciating assets.
How Does The Instant Asset Write Off Work?
To take advantage of the elevated $20,000 instant asset write-off threshold, small business entities must have met certain criteria during the 2023-24 income year. The business must have been:
- Operational during this time;
- Adhering to the general principles of conducting a business
- Drawing an aggregated annual turnover of less than $10 million
Pro tax tip: You can base your aggregated annual turnover on either the current or the preceding tax year.
Qualifying for the Instant Asset Write-off Threshold
The business must elect to utilise the simplified depreciation rules for the income year in question. The assets in consideration must individually cost less than $20,000. It should also be put to use or be ready for use within the specified period, starting from July 1, 2023, to June 30, 2024. Finally, its uses must relate to the business’s taxable activities.
If you do not opt for the simplified depreciation rules in the 2024 income year, you will not be eligible for the instant asset write-off, even if you satisfy all other conditions.
Pro tax tip: The threshold applies to each asset separately, which means that a small business can potentially claim the immediate deduction for several assets, provided each one’s cost does not exceed $20,000 during the 2024 fiscal year.
Using the Instant Asset Write-off in 2024
The raised instant asset write-off threshold has implications for the balance of the small business pool. Here, you use a $20,000 threshold to determine if you can write off the entire balance of the pool in the 2024 income year. The calculation for this does not consider the closing balance of the pool. Instead, it considers what the balance would have been without the current year’s depreciation deductions.
The rules that typically prevent small business entities from re-adopting the simplified depreciation regime for five years after opting out will remain inactive until June 30, 2024. This suspension of the lock-out rules provides additional flexibility for small businesses during this period.
If you’re at all uncertain about these qualifying factors and considerations, contact ITP and one of our friendly certified accountants will be happy to give you guidance.
What Assets Are Eligible for the Instant Asset Write-Off?
The ATO designed the provisions for the instant asset write-off to target assets that are eligible for depreciation. Any costs incurred from capital improvements to buildings, which are governed by the capital works deductions, are not eligible for this write-off.
Assets priced at $20,000 or above are also ineligible. However, as mentioned earlier, you can add these higher-cost assets to the small business general pool. In the initial year of purchase, these assets are subject to a 15% depreciation rate. In the following years, the depreciation rate increases to 30% for each year.
When dealing with complex tax rules, particularly ones that only apply to specific periods and under strict rules, it’s best to enlist the services of a skilled and experienced tax agent. ITP’s certified tax accountants arm you with encyclopedic knowledge of Australia’s tax laws. We’ll take over all the frustrating work, determining whether your business can take advantage of the instant asset write-off and then making sure you maximise your claims.
Our tax professionals can also provide guidance on a range of other tax-saving strategies tailored to your small business needs. So, find your nearest ITP branch, and book an appointment with one of our tax experts today. Their expertise will ensure you always maximise your tax benefits while remaining compliant with the latest tax laws and regulations.