As part of the Federal Government’s recent Coronavirus Stimulus Package, eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use. Instant asset write-off can be used for multiple new and second-hand assets as long as the cost of each individual asset is less than the relevant threshold. From 12th March 2020 until 31st December 2020 the threshold amount for each asset is $150,000 (up from $30,000). The eligibility has been expanded to cover businesses with an aggregated (total) turnover of less than $500 million (up from $50 million).
This is a great time to invest in some high-level equipment to bolster your production. While some of the bigger CNC equipment from Europe costs in excess of the new threshold, there are still some smaller CNC’s from Europe and certainly almost every machine made in Australia would fall under this amount. With only a few months to go before the end of the year, some European equipment would not make it to Australia in time to qualify, unless it’s already in a showroom in Australia or on its way here.
It cannot be used for assets that are excluded from the simplified depreciation rules. These are assets that are expected to be leased out for more than 50% of the time on a depreciating asset lease; horticultural plants; some software and depreciation and capital expenses and allowances. You should seek financial advice on what is included and what is not. Some of the items you could purchase are cash registers and other POS devices; cars, vans, and utes; fittings and fixtures; plant and machinery; computers and laptops, and security systems.
The write-off could include a motor vehicle designed to carry a load less than one tonne and fewer than nine passengers, and for the 2020–21 income year this is $59,136. If the motor vehicle is used for 75% business use, the total you can claim under the instant asset write-off is 75% of $59,136. If the vehicle is not considered a passenger vehicle and costs more than $59,136 you can claim the whole amount up to the $150,000 threshold.
This tax break is not a cash hand-out, but a deduction that reduces your taxable profit. Nearly two-thirds of Australian businesses are under-utilising the scheme but in the cabinet industry, suppliers advise that plenty of companies have taken advantage of the initiative and containers of equipment are on their way to Australia. If you operate as a company and spend, say, $40,000 on a capital purchase (net of GST), then assuming a tax rate of 27.5 percent, the company will receive a 27.5% deduction, which equates to a $11,000 reduction in tax. This means that the company will still have a net cash outlay of $29,000 on this purchase. The Australian Taxation Office website has more information on this initiative.