Small businesses are the lifeblood of Australia. Small but mighty, many of these businesses are working with limited resources when it comes to budgets and manpower – especially compared to their larger counterparts. After more than two years of uncertainty and with a recession looming, it has never been more important to take advantage of the government schemes available to help small businesses save where they can. These include the instant asset write-off and temporary full expensing (TFE) scheme. Before you finalise your tax return for the last financial year, it might be worth reading on to see if your business can take advantage of them.
What is the instant asset write-off?
The federal government’s instant asset write-off allows eligible businesses to claim a tax deduction for any assets purchased and used for business purposes. A hospitality business, for example, could use the scheme for a new coffee machine, while a retailer might use it for a new EFTPOS terminal. The write-off can be used for multiple assets if the cost of each is less than the $150,000 threshold, but is only applicable for assets purchased and used in the year that the write-off is claimed. The instant asset write-off does not apply to assets purchased or installed after 7:30pm on 6 October 2020. For these, you must apply for the temporary full expensing (TFE) scheme.
What is the temporary full expensing scheme?
TFE, on the other hand, is designed to offer businesses even greater financial relief. It essentially just removes the previous $150,000 instant asset write-off threshold. Providing the asset is a genuine business expense and used within the year of the claim, the cost of the asset is now irrelevant.
As well as the stipulations around the date of the purchase of the asset and the submission of the claim, eligible businesses must have a turnover of less than $5 billion. If your business has an aggregated turnover of less than $50 million, TFE applies to eligible second-hand depreciating assets and improvements to an eligible asset. If you aren’t eligible for TFE, it is still possible to apply for the instant asset write-off scheme.
Which assets can be claimed?
Only depreciating assets, those which decline in value over time, can be claimed. Think of, for example, of equipment like commercial ovens or beer dispensing systems; technology like laptops and EFTPOS terminals; furniture like dining tables and chairs; or vehicles like delivery vans. The asset must be purchased outright to be eligible, rather than hired or leased.
There are exceptions, though. For example, you cannot claim capital works such as installing a new fitting room in your store. Nor can you claim assets that will be leased out for 50 per cent of the time, intangible assets (something that doesn’t exist physically, like software) or horticultural plants like, for example, those that are used as part of the decor.
Why is this important for your small businesses?
For any business owner it is important to understand the tax policies applicable to your business and set your business up for financial success each year. If you are looking to maximise your opportunities for growth this coming financial year, taking advantage of tax relief benefits like the instant asset write-off and TFE where possible can set you on the right track.
Lightspeed is not a financial or tax advisor. Lightspeed recommends seeking professional help from an accountant or contacting the Australian Taxation Office (ATO).
