Instant Asset Write Off – Get in now to maximise Business Tax Deductions

We have been assisting a number of clients with enquiries on how to finance new equipment purchases for their businesses, to take full advantage of the updated Instant Asset Write-Off announced in the recent 2020 budget.

What is it?

tax write off

All small, medium and larger businesses in Australia with a turnover of up to $5 billion a year will be eligible for tax write-offs of the depreciation value for the full value of the asset. This allows businesses to write-off the full cost of any asset purchased during this financial year. The Government has announced it will foot the whole cost until June 30, 2021. So, we strongly encourage all eligible clients to consider utilising the opportunity.

 

What do you get?

The benefit of the tax write-off is that you are able to:

  • Claim the full depreciation in this year, even if you only own the asset for a few days;
  • Get your GST back

 

What is the catch?

There are some parameters around claiming the asset write-off which include:

  • Multiple assets can be written off in the one year;
  • Items can be New or Used;
  • Asset must be first used, or installed and ready for use, by 30 June 2021; and
  • Existing assets that have been ordered before 6th Oct 2020, but not yet installed, can now have the asset installed by 30 June 2021, to claim the write-off.

 

How do you finance it?

From a business cash flow perspective, we always encourage clients to finance asset purchases against the particular asset rather than from cash reserves from the business or personal equity belonging to the directors. That way, you can pay down your home loan, pay school fees, personal debts, or other things that generally are not tax-deductible.

Through our finance division (working alongside the Accounting and Tax Team), we assist clients to obtain the finance, and also the structure to maximise the tax deductions and the GST refund (where your business is registered for GST).

 

How can you use it to save money?

Taking advantage of this measure is best shown by an example. Let’s look at John, who owns a trucking business. On 1 December 2020, John purchases another Volvo truck for his business valued at $105,000. On 3 March 2021, he decides to purchase a new trailer for $95,000 to use within the business. John finances both purchases over a 5-year term, secured by each respective piece of equipment, with no balloon payment (also called a Residual) at the end of the five years.

The tax benefit looks like this:

can I finance it

Vehicle Cost

$105,000

Trailer Cost

$ 95,000

TOTAL Equipment Cost(all deductible)

$200,000

Less GST Refund (1/11)

$18,181

Instant Asset Write-Off

$181,819

Tax Saving at 27.50% (company tax rate)

$50,000

Net cost after tax in Year 1

$131,819

 

Based on an example of a current vehicle finance interest rate of 3.5% per annum, the monthly repayments for the truck and trailer are approximately $3,307.60 per month

So, the tax and GST savings totalling $68,819 are the equivalent of over 18 months of your finance repayments. Also by financing it in this way, you receive back your GST in your next quarterly BAS, which means you are seeing actual cash flow back into your business.

We’ve been assisting clients to get their finance approved before going out to find their equipment, as this makes it easier to negotiate a better price and better overall deal with the dealers.

Still have questions? We are here to help.

For more information, please contact us at consulting@austasiagroup.com, or direct to our finance team, aafb@austasiagroup.com.

If you want to discuss your specific circumstances, please call us on (08) 9227 6300 and talk to Simon or Cam Lang from our Finance Team.

For a summary of all of the budget announcements, see here.

Full details are available here https://budget.gov.au/

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AAG AustAsia

AAG is a family-owned group providing Tax planning, management accounting, wealth management, and more. Established in 1979, AAG acts entirely in their clients' best interest by providing financial expertise and upholds a reputation of nurturing long-lasting relationships with clients to assist them with all their personal and business financial issues.

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