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$20,000 instant asset write-off survives another Budget

By  Stephen Sealey

It has been one of the most popular tax breaks ever and the nation’s army of small business owners can breathe a sigh of relief tonight – the $20,000 instant asset write-off lives on.

The tax deduction scheme for businesses was first unveiled on Budget night 2015 and has since spawned hundreds of thousands of extra purchases ranging from computers, tools and machinery to cars, office furniture and air conditioners.

Treasurer Scott Morrison announced the scheme would continue for the next 12 months.

“In this Budget the Government will extend the $20,000 instant asset write-off for a further 12 months to 30 June 2018. The turnover threshold will also be lifted to $10 million, five times higher than was originally available,” Mr Morrison said.

“This measure will improve cash flow for small business, providing a boost to small business activity for another year, helping them to reinvest in their business and replace or upgrade their assets,” he said.

“Improved cash flow will also give businesses the flexibility to hire more employees and pay staff more.”

Everyone from small business lobby groups to farmers, accountants and the Government’s own Small Business Minister Michael McCormack had recommended the $20,000 deduction scheme continue.

Many had also gone so far as recommending the scheme become permanent to give more certainty to businesses and allow them to plan ahead for asset purchases in future years. There have also been calls to increase the limit to assets up to $30,000.

The popularity of the tax concession saw almost 100,000 small businesses make claims in first six months of its operation, according to Treasury data. Businesses claimed a total of $418.5 million between July 1 and December 15, 2015, compared with only $250 million for the same period the year before.

Mr Morrison confirmed the higher deductibility threshold had been very well received by small business with an increase in claims of depreciation deductions.

“Small businesses across Australia are investing in assets that will help them grow and prosper,” he said. “It is important to support this vibrant part of our economy so small businesses can continue to grow, invest and flourish.”

Any depreciating asset worth up to $20,000 is eligible for the deduction, where a depreciating asset is something with a limited life span that is expected to fall in value over time.

Previously, assets over $1,000 had to be depreciated over several years after purchase but the current scheme provides the whole tax break up front, resulting in improved cashflow for the business owner.

However, owners need to remember that this is not a government grant and they first need to be making a profit in order to receive the benefit of the tax deduction.

When the measure was first introduced, the company tax rate for small businesses was 30 per cent but the rate is now 27.5 per cent for turnover of up to $10 million. This means the size of the tax break is also slightly less but no one is likely to be complaining.