Instant asset write off thresholds

Using the simplified depreciation rules, assets costing less than the relevant instant asset write-off threshold are written off in the year they are first used, or installed ready-for-use. This threshold applies to each asset irrespective of whether the asset is purchased new or second-hand.

There’s 3 significant dates to get your head around this financial year, and they’re illustrated above.

An asset must be first bought and used, or installed ready-for-use in the year you claim the deduction under the simplified depreciation rules. The ATO illustrates this using an example of a trailer. A trailer purchased and stored in the shed but not yet fitted out for the intended business purpose would not be eligible.

The entire cost of the asset must be less than the instant asset write-off threshold, irrespective of any trade-in. The cost of an asset includes both the amount you paid for it and any additional amounts you spent on transporting and installing it ready for use. The cost also includes amounts you spent on improving the asset.

If you are registered for the goods and services tax (GST), you exclude the GST amount you paid on the asset when you calculate your depreciation amounts (and your instant asset write-off threshold is exclusive of any GST). This is because you will claim as a credit the GST paid in your activity statement for the relevant period. If you are not registered for GST, you include the GST amount you paid on the asset in your depreciation calculations (and your instant asset write-off threshold is inclusive of any GST).

When you work out the amount you can claim, you subtract any private use proportion. So if you purchase a new computer for $7,000 and you use it 80% of the time for business you claim $7,000 - ($7,000 x 20%) = $5,600. The balance ($5,600 that is the proportion used in earning assessable income) is generally the taxable purpose proportion. While only the taxable purpose proportion is deductible, the entire cost of the asset must be less than the threshold, otherwise the asset will be added to the small business pool.

If the cost of the asset is the same as or more than the relevant instant asset write-off threshold, the asset must be placed into the small business pool. The small business pool is a list of all your depreciable assets with their current written down values. Any depreciating assets for which you can't claim an immediate write-off are allocated to the small business pool. This includes assets that:

• cost the same as or more than the instant asset write-off amount

• you held before you used the simplified depreciation rules (other than excluded assets).

You claim a 15% deduction for assets in the year you buy them (regardless of when the asset was purchased during the year) and a 30% depreciation deduction in subsequent years.

The other thing to know is while you might get an instant asset write off now, you may end up with tax payable when you dispose of the asset. Say you purchased an asset today costing $20K, the asset can be immediately deducted in this financial year. If you sell the asset for $16K in two year’s time, the $16K is included in your assessable income in that year, and you pay tax on this amount. How much tax you pay will depend on your structure and the tax rate.