Business owners who are taking advantage of the Instant Asset Write-Off Scheme now have until the end of the calendar year to organise a purchase.

The Federal Government announced the Scheme, where eligible businesses can purchase assets like coffee machines, trucks and other relevant materials worth up to $150,000 and claim it on tax, will be extended until the end of 2020.

Originally set to end on July 1, 2020, business owners have an extra six months to organise a purchase. However, if buying an asset occurs during the next financial year, the tax benefits in cash terms won’t become clear until the 2021 tax bill is paid, which is due typically in May 2022.

Here is a quick example of how it works:

Eligible business, ABC Pty Ltd., has a profit of $200,000 before tax. 

The business owner is considering purchasing a new ute to add to a fleet, which costs $40,000 + GST and requires a loan from the bank.

If the company takes delivery of the ute before June 30, 2020, ABC’s taxable profit falls from $200,000 to $160,000, and the resulting tax bill (due for payment May 2021) reduces from $55,000 to $44,000.

The effective tax saving of $11,000 is effectively 27.5% of the amount spent.

The $300 million announcement forms part of the government’s response that alleviates some of the tough economic impacts from COVID-19 businesses are enduring and builds on the initial Scheme introduced in 2018.

Additionally, the value of an asset that businesses can claim is now six times higher than the initial announcement, with the Federal Government expanding the write-off amount to $150,000 in March 2020 as one of several announcements to support Australian businesses in surviving the pandemic.

If you need to talk to an accountant regarding the extension, please feel free to contact us here.