Instant asset write-off - is your business eligible to claim a tax deduction for the purchase of an asset?
To provide some background, the government legislated the temporary full expensing in the 2020 budget, which was delayed to October due to COVID. The purpose of this was to help stimulate the economy, and many small businesses took this opportunity.
Temporary full expensing is the ability to claim a tax deduction for the purchase of an asset, whereas in the past you had to depreciate it over the useful life of the asset.
Temporary full expensing ceases on June 30, 2023 at the time of writing this article. While this is several months away, high demand and supply issues mean that you should investigate now whether you should look at buying any new assets or improvements to existing assets by June 30, 2023. This is because to claim the tax deduction, the asset must be installed or ready for use by June 30. We have experience firsthand in the 2022-year clients who missed out on this claim, either because an asset that was ordered did not arrive in time, or equipment that required installation was not completed by June 30, 2022.
Not all assets are eligible for temporary full expensing. In particular, primary producers may be able to claim water facilities, fencing, fodder storage assets and horticultural plants under temporary full expensing or special primary production depreciation rules. You should discuss these rules with your accountant to decide which will give you the best tax outcome.
While claiming the full cost of an asset as a tax deduction gives a great tax benefit now, you should be mindful of the tax consequences if you sell this asset later. Previously, the sale of an asset only gave raise to income if the sale price was greater than its written down value, which is the cost price less depreciation claimed each year. Now, as the asset is written down to nil, any amount received on sale will be income. You do have the choice to opt out of claiming temporary full expensing, but you should discuss this with your accountant the pros and cons of doing so.
Finally, consideration should be given to paying for any large asset purchase. Talk to your accountant about this, as well as your bank or your equipment finance broker.
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