SMEs Should Take Advantage Of The Instant Asset Write-off For Eligible Businesses

Owning your own business is a dream for many. If you’re successful, it means that you’re able to take control of your own destiny and work your way, on something that then becomes your legacy.

Unfortunately, the flip side to this is the frightening statistic that 60% of businesses in Australia fail within their first three years of operation.

The reasons that businesses fail are, of course, myriad. There’s no single solution that can protect businesses from all risks. However, an area where many small business owners often struggle is minimising the tax they pay, and this gap in business knowledge can have implications for their sustainability.

One important consideration, for example, is the instant asset write-off for eligible businesses.

Division 328 of the Income Tax Assessment Act 1997 provides a range of income tax concessions for small business entities, including access to the simplified depreciation rules (see Subdivision 328-D).

Under section 328-110, any entity is a small business entity for an income year if the entity carries on a business in that year and either:

• The entity carried on a business in the prior income year and its aggregated turnover was less than a threshold amount (i.e. less than $10,000,000); or
• The aggregated turnover of the entity in the current income year is likely to be less than that threshold.

Legislation increasing the ‘instant asset write-off’ threshold from $1,000 to $20,000 for the year ended 30 June 2024 was passed in Parliament just five (5) days prior to the end of the financial year.

This means that for the year ended 30 June 2024, purchases of depreciable assets with a cost of less than $20,000 that a small business made between 1 July 2023 to 30 June 2024 can potentially be written-off in the year of purchase.

The general aim of this measure is to support small businesses by allowing eligible depreciating assets to be immediately deducted. In doing so, small businesses should benefit from:

• Decreased compliance costs associated with business investment, as the depreciation of eligible assets does not need to be tracked over time; and
• Improved cash flow as deductions from future years are being brought forward.

To be eligible to apply the simplified depreciation rules and the ‘instant asset write-off’ during the year ended 30 June 2024, a small business would typically need to ensure that the depreciating asset:

• Cost less than $20,000;
• Was purchased before 30 June 2024, i.e. a valid tax invoice is on hand to confirm this;
• Was first used or installed ready for use before 30 June 2024; and
• Is not an excluded asset or does not exceed another limit (i.e. car limit).

If you purchased any assets that this applies to, then you should make sure that you’re claiming the full benefit on the tax return for the year.

We're here to help

Small business owners ideally don’t want to be spending much time dealing with accounts and compliance. While it’s essential and mandatory for any business, it’s also time-consuming and it means that the business owner has less time to invest into the strategic direction of the business (or directly earning revenue).

What makes it harder is the taxation system does change from time to time, and that in turn complicates compliance. For example, the instant asset write-off eligibility criteria and thresholds have changed over time and vary for each income year.

The best way to reduce the risk of making mistakes and reduce the time you spend managing accounts is to access a quality advisory service. If you are a small business owner who would like us to assist in providing clarity in relation to the application of the ‘instant asset write-off’ please do not hesitate to contact our office.

Get in touch for more insights or direct support - we are here to help. You can also find news, webinars and resources online, and contact us on (02) 8999 1199 for all your tax, accounting and advisory needs.