The ATO’s Instant Asset Write-Off Threshold For Small Businesses
Starting up your own small business can come with its own myriad of challenges. Finances and overhead can be a massive one – we get it. And we’re sure it’s not something you want to be stressing about or spending an immense amount of time on either. Who would blame you? Depending on your unique business, the majority of your brain energy is going towards scheduling, meetings, production, managing staff, orders, marketing, and more - in a challenging economic climate.
The Australian Taxation Office (ATO) tries to support this by raising the instant asset write-off threshold for the 2023-24 tax year to $20,000.
Before we get into it, let’s define what the instant asset write-off threshold is.
The instant asset write-off threshold allows small businesses with an aggregated turnover of less than $10 million to immediately deduct the business portion of the cost of an asset.
A couple of things to note:
The asset must be purchased and used or installed ready for use within the dates specified for the instant asset write-off.
The write-off applies to new and second-hand assets used or installed ready for use by the end of the relevant financial year.
Small businesses can claim the instant asset write-off for multiple assets, as long as the cost of each individual asset is below the threshold.
The write-off is applicable only to the business-use portion of the asset. If an asset is used for both business and private purposes, only the business portion can be claimed.
So, let’s get into the nitty-gritty of the instant asset write-off threshold.
The ATO announced on the 9th of May 2023, as part of the 2023-2024 budget, that it will improve cash flow and reduce compliance costs for small businesses by temporarily increasing the instant asset write-off threshold to $20,000, from the 1st of July 2023 until the 30th of June 2024.
You may be wondering, how does this apply to my small business considering the 30th of June 2024 has already passed?
On the 14th of May 2024, the government announced that it will continue to improve cash flow and reduce compliance costs for small businesses by extending the $20,000 instant asset write-off by a further twelve months until the 30th of June 2025.
So, how do you utilise this instant asset write-off to help your small business?
Step One: Confirm Eligibility — Ensure that your business has an aggregated turnover of less than $10 million.
Step Two: Check Asset Criteria — Verify that the assets you wish to write off meet the criteria for the instant asset write-off.
Step Three: Purchase the Asset — Buy the asset if you don’t already own it. Ensure the cost is less than the instant asset write-off threshold of $20,000.
Step Four: Install or Use the Asset — Install or use the asset within the income year you are claiming the write-off.
Step Five: Calculate Business Use — Determine the portion of the asset used for business purposes, as only the business-use portion of the asset’s cost can be claimed.
Step Six: Maintain Documentation — Keep proper documentation of the asset purchase, including invoices, receipts, and any relevant records that substantiate the business use of the asset.
Step Seven: Claim the Deduction — When lodging your tax return, include the instant asset write-off in your deductions. This is done through the business’s tax return for the income year in which the asset was first used or installed ready for use.
As you might be able to tell by now, it’s a fairly easy process that brings much relief to small business owners. If you feel like you need more hands-on help, reach out to FRE.DM Wealth. Michaela is immensely knowledgeable in this taxation realm and is here to help you get the most out of your tax return so you can live abundantly. Taking advantage of these tax benefits can make a significant difference in your business’s financial health, allowing you to reinvest in growth and innovation.
