The instant asset write-off 2022 is an extension of the program that was introduced in Australia in 2011. It was initially created as a way to stimulate the economy by getting businesses to invest in equipment and other assets. Let’s look at how the instant asset write-off works and how it can potentially help your business.
What is it and how does the instant asset write-off work in 2022?
The instant asset write-off makes it possible for you to write off the full amount of an asset in the financial year in which it was purchased. When it first started, the program had a threshold of $1,000 per asset. This meant that you could only deduct the first $1,000 of the asset price in that financial year. The threshold was raised to $150,000 per asset in 2020 as a way to stimulate spending. The threshold was later removed, so eligible businesses can purchase assets for any amount and write off the expense in the current year.
In addition, changes were made that allow businesses to write off the purchase of used equipment as well as the costs of improving existing assets. So if a company spends money on refurbishing an asset, that cost can be deducted in the year the work was completed. With these changes, the government now calls the program ‘temporary full expensing’ instead of ‘instant asset write-off’.
In the past, before the scheme was introduced, businesses could only deduct a portion of the cost of the asset each year. For example, if a business purchased an asset for $80,000, it could only write off $20,000 per year over four years (the number of years would depend on the method used to depreciate the asset).
The instant asset write-off includes simplified depreciation rules that allow for temporary full expensing of assets until 30 June 2023. This is the current ending date of the program, but it has been extended several times in the past as part of the Federal budget.
What qualifies for the 2022 instant asset write-off?
Under the instant asset write-off extension in 2022, you can claim the full cost of a business asset in the year it’s purchased, delivered and installed. This includes:
- Machinery and equipment
- Shop and office furniture
- IT hardware – desktop computers, laptops, printers and monitors
- Kitchen equipment
- Motor vehicles
- Air conditioners.
Almost everything, including the kitchen sink if it’s used for business purposes, can be deducted in the year it is purchased. There are a few exceptions listed by the ATO, but these don’t apply to most business purchases.
Who qualifies for the 2022 instant asset write-off?
Under current rules, active Australian businesses with an ABN – including sole traders, companies, partnerships and trusts – are eligible if their total annual business annual turnover is under $5 billion. In addition, businesses with annual revenue under $50 million can also claim a deduction for second-hand assets purchased.
Points to consider for the instant asset write-off extension in 2022
Depending on your situation, it might be better to write off an asset over several years. For example, if you purchase an asset that will lead to substantial increases in income in subsequent years, depreciating the asset in future higher income years might be beneficial. It’s a good idea to discuss this with your accountant to determine the best approach.
Also, the asset has to be delivered and installed by the end of the financial year (30 June 2022) to qualify. If you purchase the asset at the beginning of June 2022, but it isn’t delivered until the beginning of July 2022, it doesn’t qualify for the instant asset write-off in 2022 but will have to be claimed in the next financial year (ending on 30 June 2023).
If the asset is not used exclusively for business purposes, you need to determine the percentages for personal and business use. For example, if a car is used for business 60% of the time and for personal use 40% of the time, you can only write off 60% of the purchase price on your tax return.
An instant asset write-off extension example
Diane runs a manufacturing business and purchases a CNC machine for cutting during the production process. The machine costs $80,000 (exclusive of GST) and is delivered and installed, ready for use before 30 June 2022. At the small business tax rate of 25%, Diane can claim an immediate deduction for the full amount and will reduce her income tax bill by $20,000 ($80,000 x 0.25).
Overcoming the finance challenge for small businesses
While you can benefit by writing assets off in the year they are purchased, many small businesses don’t have the funds on hand to purchase machinery, equipment and other assets they need to grow.
Unsecured business loans from Lumi are one solution that helps SMEs get the funding they need to take advantage of the instant asset write-off in 2022.