The Ultimate Guide to the Instant Asset Write-Off in 2024: What Small Businesses Need to Know
Introduction: How the Instant Asset Write-Off Can Benefit Your Business
Hey there! As a small business owner in Australia, you’ve probably heard about the Instant Asset Write-Off. It’s a tax incentive that can make a huge difference by allowing you to claim an immediate deduction for the cost of business assets. But with tax rules and limits changing regularly, especially in 2024, it’s essential to stay updated. In this guide, we’ll break down everything you need to know about the Instant Asset Write-Off, including the latest rules, limits, and eligibility criteria.
Remember, this information is general in nature. For specific advice tailored to your business, make sure to speak with your accountant.
1. What is the Instant Asset Write-Off?
The Instant Asset Write-Off is a tax deduction scheme that allows eligible businesses to instantly write off the cost of certain assets in the year they are purchased, rather than depreciating them over several years. This means you can claim a deduction right away, which can boost your cash flow by reducing your taxable income in the same year.
The write-off applies to both new and second-hand assets as long as they’re used or installed ready for use within the tax year.
2. Eligibility Criteria for 2024
For the 2023–24 financial year, your business needs to meet certain criteria to qualify for the Instant Asset Write-Off:
Turnover Requirements: Your business must have an aggregated turnover of less than $10 million to access this tax incentive.
Asset Use: The asset must be used or installed and ready for use within the tax year.
Asset Cost: The cost of the asset must be under the current threshold.
Keep in mind that each asset must meet the criteria individually. For example, if you purchase two assets under the threshold, you can claim an instant deduction on both, provided they meet the eligibility rules.
3. Thresholds: How Much Can You Claim?
The Instant Asset Write-Off has a $20,000 threshold for eligible assets in the 2023–24 income year. This means any asset that costs less than $20,000 can be fully deducted in that year.
Historical Thresholds
The threshold has varied over time. Here’s a quick look at recent changes:
$150,000 for assets first used or installed ready for use between 12 March 2020 and 30 June 2021.
$30,000 for assets installed between 2 April 2019 and 11 March 2020.
These changes reflect the government’s aim to support businesses during different economic conditions, such as the COVID-19 pandemic, by offering more flexible tax deductions.
4. Types of Assets That Qualify
The Instant Asset Write-Off can be used for a wide range of business assets, including:
Vehicles (subject to car limit; more on this below).
Machinery and Equipment used in production or operations.
Technology such as computers, software, and networking equipment.
Office Furniture and Fittings needed for workspace setup.
The asset must be genuinely used for business purposes, and if it has a personal-use component, only the business portion can be written off.
5. Important Note on Car Limit
If you’re considering purchasing a car for business, there’s a car limit to be aware of. The maximum amount you can claim for a passenger vehicle is $64,741 for the 2023–24 income year. This limit applies to vehicles designed mainly to carry passengers, such as sedans or SUVs, but not to vehicles like trucks or vans used specifically for business.
If you buy a car for $80,000, for instance, you can only claim up to the car limit for the business portion, and you cannot depreciate the remaining amount under other rules.
6. Claiming Additions to Previously Written-Off Assets
One unique feature of the Instant Asset Write-Off is that you can claim deductions on certain additions to assets you’ve previously written off. For instance, if you purchased an asset under the threshold and later added a component to it, like a new attachment to a machine, you might be able to write off this addition as long as it meets the threshold and timing requirements.
For example, if you bought a piece of machinery in 2022 and added a $15,000 attachment to it in 2024, that addition might qualify for an instant deduction if it meets the criteria for the 2023–24 tax year.
7. Exclusions: Assets That Don’t Qualify
While the Instant Asset Write-Off is very flexible, there are some exclusions. These include:
Assets leased out to another party on a more-than-temporary basis.
Assets purchased from related parties or entities.
Capital works (such as buildings and structural improvements).
Primary production assets like fencing or water facilities for farmers, which fall under different depreciation rules.
For a comprehensive list, consult the ATO guidelines or speak with your accountant.
8. GST and Instant Asset Write-Off
If your business is registered for GST, you should exclude the GST component of the asset when calculating the amount eligible for the write-off. For example, if you buy an asset for $22,000 including GST, you’ll calculate the write-off based on the $20,000 excluding GST.
However, if your business isn’t registered for GST, you include the GST in the asset’s cost when claiming the deduction.
9. Temporary Full Expensing vs. Instant Asset Write-Off
It’s also important to understand the difference between the Instant Asset Write-Off and Temporary Full Expensing, another tax incentive for businesses. While the Instant Asset Write-Off applies to assets under a specific threshold, Temporary Full Expensing allows for the immediate deduction of the full cost of eligible assets with no threshold limit. This scheme was introduced in response to COVID-19 and applied through June 2023, but the Instant Asset Write-Off remains available for 2024.
For businesses with larger purchases that exceed the $20,000 threshold, Temporary Full Expensing might have been a better option in previous years. However, for 2024, businesses should focus on the Instant Asset Write-Off for assets below the current threshold.
10. How to Claim the Instant Asset Write-Off
If you’re ready to take advantage of the Instant Asset Write-Off, follow these steps:
Purchase an eligible asset: Make sure it meets the cost and use requirements.
Use or install the asset by June 30: The asset must be in use or ready for use by the end of the financial year.
Calculate the business portion: If the asset has personal use, only the business portion is eligible.
Document everything: Keep receipts, invoices, and usage records to support your claim.
Work with your accountant: They can ensure your claim is correct and optimised for your business.
Final Notes
The Instant Asset Write-Off remains a valuable tool for Australian businesses in 2024, providing immediate tax relief and supporting growth. By understanding the eligibility requirements, thresholds, and exclusions, you can make the most of this incentive.
If you have questions or want to learn more about how the Instant Asset Write-Off could benefit your business, feel free to reach out. We’re here to help guide you through the complexities of business finance and tax incentives to ensure your business thrives!
