For three years, from 2020 to 2023, Australian businesses enjoyed unprecedented tax concessions, allowing them to write off asset purchases up to any amount. However, these generous measures have come to an end, with the reintroduction of the Instant Asset Write-Off (IAWO) capped at $20,000 from July 1, 2023. In this blog, Equifund explores the implications of these changes for businesses and how they can still benefit from the available tax concessions.
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The transition from temporary full expensing to instant asset write-off
The Temporary Full Expensing (TFE) scheme, which allowed businesses to write off assets of any value in the first year, was a significant boon for many. However, this scheme ended on June 30, 2023, and was replaced by the more restrictive IAWO. The IAWO, now capped at $20,000, applies to all asset purchases, including motor vehicles. This represents a significant reduction from the previous uncapped write-off available under TFE.
Key details of the Instant Asset Write-Off (IAWO) for 2023/24
- IAWO Cap: The write-off is limited to $20,000 per asset, including vehicles.
- Eligibility: Businesses with an annual turnover of up to $10 million can claim the IAWO.
- Multiple Assets: Businesses can claim IAWO for multiple assets, provided each asset costs under $20,000. For example, purchasing a fleet of compact machines each costing less than $20,000 would allow the business to claim the deduction for the entire fleet in the 2023/24 financial year.
Depreciation for assets over $20,000
For assets exceeding the $20,000 cap, businesses can still claim deductions but must do so over several years. The depreciation rates are 15% in the first year and 30% for subsequent years. This is a return to pre-pandemic practices and requires more strategic planning for capital purchases.
Historical context and recent changes
Before the pandemic, the IAWO cap was set at $20,000 but saw several increases, peaking at $150,000 during 2020 and 2021. This was part of the government's effort to stimulate business spending during challenging economic times. The TFE scheme further expanded eligibility to businesses with turnover up to $5 billion, removing the cap entirely.
However, the current Albanese government has rolled back these generous measures. The new IAWO is more restrictive, now limited to businesses with a turnover of up to $10 million. Additionally, the cap on asset value has been reduced to $20,000, with the latest budget extending this provision until June 30, 2025, pending legislative approval.
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Strategic considerations for businesses
While the current tax concessions are less generous, businesses can still benefit from the IAWO. For instance, purchasing used vehicles or smaller machinery under the $20,000 cap allows for immediate deduction, providing a useful tax break. However, for more substantial purchases, businesses need to plan for long-term depreciation, considering cash flow and budget implications.
Conclusion
The landscape of tax concessions for asset purchases in Australia has shifted significantly since the height of the pandemic. While the end of the TFE and the reintroduction of the capped IAWO represent a tightening of available tax benefits, there are still opportunities for businesses to reduce their tax burden.
For businesses looking to make asset purchases, whether small or large, it's essential to stay informed about the latest tax rules and seek professional advice. At Equifund, we're committed to helping businesses navigate these changes and make the most of their financial opportunities. For more detailed information, consult the Australian Taxation Office or speak with your accountant.
If you're ready to explore how equipment financing can benefit your construction business, reach out to our team at Equifund Finance. We specialise in customised financing solutions designed to help you achieve your business goals and unlock new opportunities.
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*Disclaimer: This article provides general information only. Please seek independent financial advice that considers your individual circumstances.*
