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Explained: The $20,000 instant asset write-off for small businesses

A ramped-up instant asset write-off scheme will offer small businesses tax breaks on eligible purchases over the next financial year, the 2023-2024 federal budget papers reveal, averting fears the scheme would drop to cover purchases of just $1,000.

At the same time, however, the $20,000 threshold is significantly lower than the tax breaks provided by the previous Temporary Full Expensing measure, which allowed businesses to claim an immediate tax deduction for any eligible asset, regardless of value.


So what can small businesses claim next financial year, and who is eligible?

Here’s what you need to know.


Who can access the new scheme?

The new (or updated) instant asset write-off scheme will be available to eligible businesses that have an annual turnover of less than $10 million.


This differs substantially to the Temporary Full Expensing measure, which was introduced in 2020 during the COVID pandemic and was available to all Australian businesses with up to $5 billion in annual turnover.


What does it allow my business to do?

Similar to previous instant asset write-off schemes, eligible small businesses will be able to claim a tax deduction for the full value of a purchase after its use, rather than claim depreciation amounts over several years.


The scheme will cover eligible purchases up to the value of $20,000, which is the same level that was in place in 2015.


The government hopes the measure will improve cash flow for small business, while lowering the compliance and accounting costs of managing depreciation over several years.


When does the scheme start and finish?

This version of the instant asset write-off scheme will be in place from July 1, 2023, to June 30, 2024.


This means businesses will need to have the assets installed and ready to use between July 1, 2023, and June 30, 2024.


What assets are eligible under the scheme?

As in previous years, the instant asset write-off scheme will apply to all depreciable assets, as long as they are below the $20,000 threshold.


The $20,000 threshold will operate on a per-asset basis, the budget papers add, meaning “small businesses can instantly write off multiple assets”.


According to the budget papers, assets valued at $20,000 or more (which cannot be immediately deducted) will continue to be able to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year, and 30% in each subsequent income year.


What is happening to Temporary Full Expensing

Temporary full expensing, a turbo-charged version of the instant asset write-off scheme introduced in October 2020 that allowed assets of any value to be immediately deducted, was slated to expire on 30 June 2023 and that is still the case.


Tax experts had warned of a “cliff” facing small businesses at the completion of the Temporary Full Expensing scheme, when the accelerated depreciation rules return to the previous $1,000 limit. While the 12-month duration of this budget’s $20,000 instant asset write-off scheme offers some relief from this, it will be short-lived.


For more information and to check your eligibility visit the Instant asset write-off for eligible businesses on the ATO website here.

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