On 12 March, the Australian Government announced a $17.6 billion targeted stimulus package to support the Australian economy through the challenges of the coronavirus.
Part of this package includes $700 million to significantly increase the current instant asset write-off (IAWO) from $30,000 to $150,000 for businesses with a turnover of less than $500 million.
This applies until 30 June for new or second‑hand assets first used or installed ready for use in this timeframe.
Expanding the threshold will mean an additional 5300 businesses who employ around 1.9 million Australians will be able to access the IAWO for the first time.
This scheme is intended to make it easier for small businesses, like cafés or some roasters, to purchase and install new equipment.
Business.gov.au provides an example of how businesses can benefit from the increased turnover threshold:
“Samantha owns a company, Sam’s Specialty Roasters Pty Ltd, through which she operates a large food processing business in Brisbane. Sam’s Specialty Roasters Pty Ltd has an aggregated annual turnover of $150 million for the 2019‑20 income year. On 1 May 2020, Samantha purchases five new conveyor belts for her production facility for $40,000 each, exclusive of GST, for use in her business.
Under existing tax arrangements, Sam’s Specialty Roasters Pty Ltd is not eligible for the instant asset write‑off and instead would depreciate the conveyor belts using an effective life of 15 years. Choosing to use the diminishing value method, Sam’s Specialty Roasters Pty Ltd would claim a total tax deduction of $4,456 for the 2019‑20 income year.
Under the new $150,000 instant asset write‑off, Sam’s Specialty Roasters Pty Ltd would instead claim an immediate deduction of $200,000 for the purchase of the conveyor belts (i.e. $40,000 for each conveyor) in the 2019‑20 income year, $195,544 more than under existing arrangements. At the company tax rate of 30 per cent, Samantha will pay $58,663.20 less tax in 2019‑20.
This will improve Sam’s Specialty Roasters Pty Ltd’s cash flow and help her business withstand and recover from the economic impact of the coronavirus.”
The IAWO changes are part of a larger package to support businesses through the coronavirus outbreak. For example, the Boosting Cash Flow for Employers measure will provide up to $25,000 back to businesses, with a minimum payment of $2000 for eligible businesses.
For more information, click HERE.