The 2021-2022 Federal Budget was released last month, and as part of that, the Australian Government announced an increase in and extension to the Instant Asset Write Off Scheme. This was accomplished by removing the $150,000 per asset limit and extending the benefit through 30 June 2023.
So, what does this mean for you? And what should you be thinking about as we approach the end of the financial year?
Since 2020, the Instant Asset Write Off scheme has been evolving. Originally, under the Instant Asset Write Off 2021 (IAWO), if you bought an asset for your business (such as a new computer or factory machinery), you were immediately able to write off the full amount of that purchase and claim it as a tax deduction. At its outset the IAWO was capped at $30,000 per asset. However, in March 2020, as an economic response to COVID, this amount was increased to $150,000 for businesses that had an annual turnover of less than $50 million.
In October 2020, Treasurer Josh Frydenberg advised that the government was scrapping previous IAWO limits, both asset purchase amounts and annual turnover requirements. Until June 2022 almost all Australian businesses would now be able to write-off the full value of purchased assets purchased without any limits on the value of those individual purchases.
Now the Australian Government has made a further announcement extending the removal of the $150,000 per asset limit for another full year, until 30 June 2023.
It’s worth noting, however, that the limit on luxury vehicles remains in place. So, while you can still purchase a vehicle and claim the ‘full’ amount in the current financial year, that deduction is only up to the amount of $57,581 (the luxury car cost depreciation limit) excluding GST.
The IAWO has always offered great benefits to Australians who took advantage of them. These advantages increased when the government scrapped limits and extended the scheme.
The new IAWO scheme lets Australians upgrade assets and realise the full tax benefits in the current tax year. In general, when your business owns an asset that decreases in value over time, you are entitled to claim some depreciation on that asset each year. But with the IAWO scheme, you can claim the depreciation as a one-off lump sum instead. This gives businesses a great advantage when purchasing assets.
The 30 June end of financial is year rapidly approaching. This might be a great time to make that asset investment that you’ve been waiting on.
You can claim a lump sum depreciation of your new asset instead of smaller tax deductions over the asset’s life. And this can be a huge boost for your cash flow position. Decreasing your tax payable reduces your taxable income by the amount you spend on your assets. This frees up cash that can cover other things you need to effectively run your business. This might be tools, equipment, office furniture, air conditioners, work vehicles, computers and more, both new and second-hand.
Investing in assets that helps your business grow, as well as freeing up cashflow, can future proof your business against further economic downturns. When you have access to that cash, which is normally tied up for years as your deductions for depreciation are drip fed to you, you can leverage it for your advantage. Whether that’s through further asset investment, savings in your pocket or other business decisions.
Purchasing and deducting business assets before EOFY allows you to take advantage of those tax deductions in this financial year. That can put you in a better tax position quickly and allow you to keep more of your hard-earned money.
To take advantage of the Instant Asset Write Off 2021 scheme you’ll need funds to make the purchase. An asset finance loan, such as chattel mortgages and finance leases, can help you unlock the full potential of the IAWO tax break.
At Stapleton Finance we can help you get the financing that suits your particular needs and financial circumstances. Get in touch – our financing experts are ready to help.
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