Instant Asset Write Off Scheme – What’s Next in 2023?
On May 9, 2023, small to medium-sized enterprises (SMEs) nationwide breathed a sigh of relief when the Australian Government announced an extension of the instant asset write-off scheme until June 30, 2024 – up to a threshold of $20,000.
For the last number of months – as we approached the proposed end date on June 30 – there was a lot of uncertainty for SMEs and mounting pressure to take advantage of the instant asset write-off scheme before it ended. Many business owners felt the clock ticking and rushed to make significant business financing decisions.
On May 9, as part of the 2023-2024 budget – the Australian Government announced a welcomed extension for small businesses, allowing these companies to breathe a little. However, despite this extension – it left larger businesses ineligible for the scheme and wondering what it means for them. The previous threshold of $150,000 is now gone, with a new limit of $20,000 in place for the coming year.
Even with this latest announcement on May 9, there is still a lot of uncertainty and businesses in Australia still find themselves asking the same questions:
- Are we eligible to claim an asset write-off?
- How does the instant asset write off scheme work?
- Will the instant asset write-off be extended to 2024?
So, we wanted to put together a comprehensive guide to answer all these questions and provide some clarity.
What is the Instant Asset Write-Off Scheme?
Initially introduced in 2011 (and extended multiple times since then), the instant asset write-off scheme provides an opportunity for Australian businesses to improve their cash flow and remove unnecessary bureaucracy and administrative costs.
Simply put – the instant asset off scheme enables your business to write off the total amount of an eligible asset in the financial year you purchased it rather than depreciating it over several years. The primary goal of the scheme is to improve cash flow for eligible businesses and make it easier to invest back into your business.
How Does Instant Asset Write-Off Work?
Fundamentally, the instant asset write-off scheme simplifies the depreciation rules and compliance for businesses and allows them to reduce their taxable income, giving a tax deduction for the total cost of the asset. Rather than depreciating the investment over several years, businesses using the scheme can deduct the entire cost from their taxable income and boost cash flow.
For example, if your businesses purchase a new state-of-the-art piece of equipment for $20,000 – you could only deduct $5,000 each year for 4 years under the rules determined by ATO if you weren’t on the scheme. However, under the instant write-off asset scheme, businesses can deduct the entire business cost of this equipment ($20,000) in the year it is purchased.
What’s Changing with the Instant Asset Write-Off Scheme in 2023-2024?
While the purpose and functionality of the instant asset write-off scheme has stayed the same, the criteria for eligibility have gotten stricter. For SMEs with an aggregate turnover of less than $10 million, there is no change – once they purchase an asset for less than $20,000.
However, for businesses with a turnover higher than $10 million or that plan to purchase assets costing more than $20,000 – the instant asset write-off scheme is no longer an option. In either of these scenarios, companies will be required to depreciate the asset year on year based on ATO guidelines.
Without the instant asset write-off scheme, ineligible businesses will now face the burden of more time-consuming depreciation rules and the potential increase in bureaucracy and costs.
What Type of Assets Can Be Purchased on the Scheme?
The instant asset write-off scheme is particularly beneficial for industries that rely on physical assets such as construction, mining, or agriculture. Unfortunately, the larger businesses in these industries will be hit hardest by the changes in eligibility.
The instant asset write-off scheme is quite expansive in terms of what it offers small business owners and sole traders – once the asset falls under $20,000. Below is a good guideline of assets covered under the scheme.
- Machinery and equipment
- Vehicles (subject to specific depreciation rules and limits)
- Office furniture
- Fixtures and fittings
- IT hardware
- Air conditioners
- Business signage
Is My Business Eligible for the Asset Write-Off Scheme?
Several factors come into play regarding your eligibility for the instant asset write-off scheme. As we have outlined, large businesses with turnover over $10 million are no longer eligible for the scheme, despite this threshold previously being as high as $50 million.
Your business is eligible for the scheme once you match the criteria below:
- Your aggregated company turnover is less than $10 million
- The asset you’re purchasing costs less than $20,000
- The asset has been purchased and used within the year (and before the end of the scheme on June 30, 2024)
Can Sole Traders Use the Instant Asset Write-Off Scheme?
Absolutely – this recent extension and modification of the instant asset write-off scheme is designed to support small businesses and sole traders. Once your turnover is less than $10 million (and the asset you are looking to purchase costs less than $20,000) you will then be eligible to use the scheme as a sole trader – and greatly benefit from it. If you’re looking to invest in machinery, equipment, or furniture for your business – now is the perfect time to do it.
When Does the Instant Asset Write-Off Scheme End?
For the past year, June 30, 2023, has been the date on everyone’s calendar – because this was the date for the end of the instant asset write-off scheme. However, the scheme was temporarily extended rather than terminated.
It’s not that simple, though. For small businesses, it is great to see an extension until June 30, 2024, rather than trying to rush purchasing and installations before June 30, 2023. For larger businesses on the other hand (with turnover greater than $10 million) – the scheme has fundamentally ended for them, as they are no longer eligible.
What’s Next with the Instant Asset Write-Off Scheme?
We only know that the revised scheme is in place until June 30, 2024 – under these new criteria. Businesses that do not fit the new measures will be left to revert to how things were before the scheme and depreciate their assets over several years.
For SMEs and sole traders that do fall into the criteria, we advise that you learn from the past few months. We saw this year a lot of uncertainty for businesses in the lead-up to June 30, as business owners rushed to get assets purchased and installed before this looming date. Currently, there is no reassurance that the scheme will be extended again next year, so now is the time to take advantage.
Final Thoughts: How to Navigate These Changes
For small to medium-sized enterprises and sole traders – the instant asset write-off scheme offers a great incentive to invest in your business. You will significantly improve cash flow by immediately deducting the total cost of eligible assets from your taxable income.
However, as we alluded to – July 1 2024, will come around before you know it, and to benefit from the scheme, the asset in question must be purchased and in use before June 30, 2024. So, if you have plans to invest in your equipment, machinery, or other critical elements of your business – don’t let this opportunity slide.
Whether you’re eligible for the instant asset write-off scheme or not, we can help you with all your business finance needs. At Credit One, we are Australia’s leading financial brokers. So, if you need equipment financing, car financing, or agricultural financing, or even financing for cars, contact our team, and we’ll be happy to help.
