Home-based business – Part 7
Instant asset write-off
Under instant asset write-off eligible businesses can:
- immediately write off the cost of each asset that cost less than the instant asset write-off threshold amount
- claim a tax deduction for the business portion of the purchase cost in the year the asset is first used or installed ready for use.
Small business pool
Small businesses can pool the business portion of most higher cost assets (those with a cost equal to or more than the relevant instant asset write-off threshold) and claim
- a 15% deduction in the year you start to use them or have them installed ready for use (this percentage may increase to 57.5% for those assets eligible for the backing business incentive – accelerated depreciation)
- a 30% deduction each year after the first year
If you choose to use the simplified depreciation rules, you must:
- use them to work out deductions for all your depreciating assets except those specifically excluded
- apply the entire set of rules, not just individual elements (such as the instant asset write-off)
- only claim a deduction for the portion of the asset used for business or other taxable purposes and not for the portion for private use.
If you choose to stop using the simplified depreciation rules or become ineligible to use them, you must use the general depreciation rules. However, any assets in your small business pool will continue to be depreciated in the pool, even if you stop using the simplified depreciation rules.
Attend our Depreciation webinar – which addresses commonly asked questions around claiming deductions and depreciating assets.
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 of a car that is designed mainly for carrying passengers is limited by the car limit. This means that the maximum that you can claim under the instant asset write-off, for this type of car, is $57,581 for the 2019–20 income year.
If you are registered for the goods and services tax (GST) and can claim the full GST credit, 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).
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).
If you are only able to claim a portion of the GST credit, then the cost is reduced by the portion you can claim.
When you trade-in a car or any other asset, typically the agreed price of your trade-in is deducted from the cost of your new asset. The sale and purchase of the two assets may appear as one transaction.
There are two transactions, the purchase of a new asset and the disposal of an existing asset. If the purchase price of your asset (irrespective of the amount you were paid for your trade-in) is equal to or more than the relevant threshold, then it needs to be added to the small business pool and can’t be immediately written-off.