Instant asset write-offs overlooked in midst of lockdown

asset write-offs, purchases

Three-quarters of Australia’s SMEs have failed to make use of the $150,000 per asset write off for this financial year, a potential lifeline for businesses experiencing financial difficulties due to the COVID-19 pandemic, according to new research.

Michael Pratt, Founding Director of specialist business lenders SME Finance Group, who conducted the survey, describes the scenario as a big “missed opportunity” bearing in mind the write-off was increased to an amount five times more than SMEs normally get.

“We’re finding the majority of eligible companies are concentrating on other Government COVID-19 incentives and appear to have forgotten the A$150,000 write-off per asset available to them through the ATO,” Pratt said. “In many instances they will need to organise finance, order the goods and have them in place by 30 June to qualify. So, we urge them to work with their accountants and financiers now to maximise this opportunity appropriately before it’s too late. There could millions of dollars available to them to invest constructively that they’ll potentially miss out on.”

SMEs with less than $500 million in turnover have only eight weeks left to invest the extra $150,000 per asset available to them for instant asset write-offs through the Government’s 12 March 2020 stimulus package.

It has also been reported that the Government has committed to spend $700 million this year to increase the instant asset write-off so that more businesses can purchase big-ticket items such as cars and equipment for their operations or other needs in the midst of challenging times.

Pratt is unsure why more eligible businesses are not taking advantage of the unprecedented asset write-off opportunity.

“Maybe it’s because they’ve not had the time needed to really consider what they need to support and grow their business in terms of an injection five times what they were originally considering at the start of the financial year,” he said.

“Maybe they don’t know how to go about securing the monies? Especially smaller private companies with a turnover of less than $50 million that have likely structured their business financing in a way that’s unique to them. They often haven’t been given the data they need by their accountant to tick all the necessary boxes to help ensure their applications are successful through many traditional sources.”

Pratt added, “With the right planning a business can significantly reduce their tax liability in the 2020 financial year. For example, if they purchase a piece of equipment for $140,000 and take delivery before June 30, 2020, they can write off the full $140,000 in this financial year. The $140,000 is allocated to depreciation and reduces the Net Profit of the business by that amount. The lower profit means less tax paid. This is a win-win situation updating the company’s assets whilst reducing taxation liabilities.

“The other benefit is that this can be applied to any assets purchased with a cost price under $250,000 that will be delivered prior to 30 June 2020. We have business owners who have made the decision to sell their equipment that is in its last one or two years of a finance contract, paying out the financial commitment with the sales proceeds and purchasing equipment on a new finance agreement. With interest rates at an all-time low it is often the case that the finance repayment is lower than old contract which was arranged several years ago in a higher interest rate environment.”