What has been announced?

The instant asset write off stimulus package that was announced in early March this year in response to COVID-19, allows businesses with a aggregated annual turnover of less than $500 million to purchase an asset up to $150,000 for their business and be able to claim the full cost of that asset in their 2020 Tax Return.

Previously businesses (with a turnover of less than 50million) were able to only write off an asset if its cost was up to $30,000. If the asset exceeded this amount, the business would need to depreciate the asset over the assets effective life and spread the deduction over several years on the tax return.

How does this help businesses?

The Government is trying to promote spending by businesses to in turn help stimulate the economy.

For example - You might need a forklift for your business to assist move additional stock you’ve bought (e.g. Bottleshop).

The Government hopes that by buying this asset you can generate additional sales (or just become more efficient in how you have been doing things), which in turn means more cash in your back pocket to help you & your family get through this time and less reliance on the Government for assistance.

And secondly, you need to buy the forklift off someone, most likely another local business. This in turns helps that forklift business in this time, by increasing their sales which in turns helps their cashflow.

Common Misconceptions

The most common misconception is that this is free money. It is not.

The instant asset write off saves you tax at your marginal tax rate, if you spend $40,000 you won’t get $40,000 back when you lodge your tax return. Most taxpayers will only receive on average $0.30 back for every $1 spent.

For example – a Company running a small business with a net profit of $100,000 would pay $27,500 in tax once the tax return was lodged. If they spent $40,000 on an asset they needed in their business, this would reduce their net profit to $60,000 and would pay $16,500 once the tax return was lodged. By spending $40,000, the company has saved $11,000 in tax. They are still out of pocket $29,000. The instant asset write off will work in your favour only if there is a need in your business for a new asset.

Cash is King

At this time we urge all clients to review their spending and keep as much cash as they can during this time.

If you do not need an to purchase assets or equipment right now, then don’t. If your business has had to shut down, think carefully about if now is the right time to purchase.

To check your eligibility or find out more about the IAWO visit the following website:

https://www.business.gov.au/Risk-management/Emergency-management/Coronavirus-information-and-support-for-business/Increasing-the-Instant-Asset-Write-Off