Instant Asset Write Offs - Tax Deduction Extensions for Businesses

The end of the financial year is fast approaching, and that means tax bills for the self-employed and tax returns for the employed (hopefully).

SMEs will now have an extra 12 months to claim the full value of new depreciable assets. Allowing almost all Australians to immediately write off the full value of all new assets, without limits on the value of individual purchases. The scheme was due to expire on June 30, 2022, it will now continue until June 30, 2023.

What does it allow my business to do?

If you're an Australian business with an annual turnover of $5 billion or less you can:

•Claim the full value of all new eligible depreciable assets of any value that are first used or installed before June 30, 2023.

• Claim full deductions for the cost of improvements made to existing depreciable assets.

• SMEs with up to $50 million in annual revenue will also be able to immediately claim a full deduction on all secondhand purchases

The scheme essentially allows businesses to claim a tax deduction for the full value of a purchase after its use, rather than claim depreciation amounts over several years.

The aim is to get businesses to bring forward spending on new assets by allowing them to claim the full tax deduction upfront, and thereby reducing the amount of tax they pay.

Here are some expenses you might find that can reduce your tax bill.

Equipment

The end of the financial year is the perfect time to assess what equipment needs to be replaced or introduced to your workplace to maximise efficiency. Maybe you’ve started using hard-to-reach places in your warehouse, or orders are becoming larger and require a forklift? Or perhaps your tools are coming up to their ten years from manufacture date, and you’re needing new ones. Use this time to evaluate if you will be required to invest in equipment any time soon and consider if those purchases are worth making now to bring down your taxable income for this financial year. Eligibility may extend to computer software, tools, personal protective equipment, and hardware. Always consult your tax agent before purchasing and claiming.

Vehicles

The instant asset write-off is applicable to motor vehicles valued up to $57,581 in the 2019-2020 financial year and up to $59,136 in the 2020-2021 financial year. If you intend to use the vehicle for activities outside of work-related use, the value you can claim is reduced by the percentage of unrelated use. That means if you‚Äôre using it as a family car on weekends (2 out of 7 days), that‚Äôs 28.5% of the asset‚Äôs value that you cannot claim against your taxable income.

Again, this may be the perfect opportunity for your business to put money that might otherwise be billed as tax, into an asset that you can keep. Be sure to discuss any car or truck purchases with your tax agent before making them.

Office Improvements

Your business is only as good as the talent you employ; however, your talent might also be affected by the environment in which they work. Therefore, you must provide an efficient and inspiring workplace that offers excellent ergonomics and refreshing design. A full office renovation can take months of planning and construction; however, there are changes you can make that provide bang for your buck and can be executed in a day. Installing a green wall can be claimed in your tax return under alterations to a rented commercial building or for marketing purposes, depending on it’s intended use. If you’re unsure of what purpose this might come under for your specific business, check with your tax agent before purchasing. Signage can be an effective way to create a company culture and reinforce brand values, often falling under a marketing expense.

The option for standing or adjustable desks can help your employees to maintain a healthy posture, reducing any pain or disruptions due to standard-design sitting desks. Quiet and comfortable places for solo work, decked out with the right furnishings contrast well with collaborative spaces, and all depend on the furniture fit-out. Places like Ideal Office Furniture can help to provide solutions for different office nooks that can foster team work or provide a place for some refreshing down-time.

Be sure to get approval from your tax agent of what purchases will be eligible as a tax write-off in your office space.

Home office equipment

If your job involves working from home, your home office inclusions might also be an eligible tax write-off. Now is the time to ensure your set-up is fostering productivity and helping your business to thrive. If you’ve been thinking of buying a new screen to make work more efficient or an improved desk chair for comfort, this could be the perfect opportunity to spend money to your advantage. Making a list of things that you need and then items that you want, along with prices and a priority rating, could be the best way to get your tax agent’s approval first.

Education

Education is essential in the success of any industry, and up-skilling is key to business success! Luckily for business owners, specific courses and workshops are eligible tax write-offs. This one might be more complicated than the products and materials above, so be sure to provide every small detail about the course you’re looking to claim to your accountant, including dates studied (or intended to study), course outcomes, and any previous studies undertaken.

The exclusions

• Buildings

• Capital works

• Horticultural plants

• Assets allocated to a software development pool, which are subject to separate tax treatments.

• intangible assets, such as customer lists and goodwill

Things To Remember

• Don‚Äôt get into unmanageable debt just for an extra tax write-off.
• ALWAYS consult your tax agent before making tax-related business purchases.
• Keep clear records throughout the financial year, so you don‚Äôt miss any key financials.
• Keep all tax invoices and categorise them accordingly.
• Be prepared to show definitive evidence in case you might be asked for proof of expenses.