Prime Minister Scott Morrison has recently pledged to raise the small business instant write-off from $20,000 to $25,000 and extend it until 30 June 2020. Parliament will resume on the 12th of February and the government will seek to legislate the change by then.
The write-off scheme allows businesses to immediately write off depreciable assets that cost the business less than $20,000. It accelerates the speed at which business owners can make deductions, allowing them to claim a deduction for that asset in the same income year it was purchased. It can be claimed on their tax return for that income year.
Assets that are greater than $20,000 can be allocated to a pool and depreciated and deducted at different rates. The write-off allows a reduction of the amount of tax the business has to pay. If the asset is also used personally, you can write-off the percentage that is used for business purposes only. The assets must also be installed and in-use or ready to use in the same financial year it was purchased. Small businesses with an aggregate turnover of less than $10,000,000 qualify and must be a trading business. Most asset classes are eligible, except for capital works assets, horticultural plants, etc.
The estimated revenue cost of this measure is $750 million with an estimate of 3 million small businesses that are eligible to access the write-off. The measure aims to improve cash flow through forward tax deductions and provide a boost to small business activity. It aims to encourage more small businesses to reinvest and upgrade or replace their assets.
The government has decided to increase the threshold after Labor announced its introduction of the Australian Investment Guarantee – a permanent feature that will allow businesses to deduct 20% of any new eligible asset worth over $20,000 immediately. Labor has also announced that it would introduce a dedicated small business minister in cabinet should it form government. The government, it seems, is enticing the small business sector in time for the federal election.
As you look for different ways to grow and improve your business, seeking professional advice from a business consultant could prove to be an important and helpful decision.
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