I own a small business and operate as a Company. How does the instant asset write off reduce my tax liability?
In order to access the new instant asset write off threshold of $150,000 your business needs to be a trading business and pass a turnover test. As a small business I assume you pass that test.
The instant asset write-off enables your business to claim an upfront deduction for the full cost of depreciating assets in the year the asset was first used or installed ready for use for a taxable purpose.
For example if your company purchase’s an eligible asset for $100,000 ( GST Exclusive) on the 1st May 2020 and you have it installed and it is ready for use by 30th June 2020, then a deduction of $100,000 can be claimed when you lodge the company’s 2019/20 tax return. Assuming your company tax rate is 27.5% then this should reduce the tax payable by the company for the 2020 year by $27,500.
Be aware if your business is likely to make a tax loss for the 2020 year, then the instant asset write off is unlikely to provide a direct short-term benefit to you.
Note: These comments are general in nature and you need to consult your advisor for advice specific to your situation.
Courtesy: Stephen Down, Director, AMD Chartered Accountants