Have you heard of the Federal Government’s Instant Asset Write-Off? If you haven’t, you're not alone. A lot of us start tuning out when someone utters the words ‘tax’, ‘asset’ or ‘threshold’, but hear us out – it is worth the time to find out more on how your fitness business can save thousands of dollars come tax time.
Instant Asset Tax Write-Off increased and extended
Earlier in the year, following the 2019/20 Federal Budget announcement, the Morrison government announced that the Instant Asset Write-Off program would be increased and extended to run through to June 30, 2020. The current scheme allows business owners to immediately write off depreciable assets that cost the business $30,000 or less. The program is particularly valuable to businesses that are capital intensive, just like commercial gyms, who require the purchase of high value equipment for their businesses to run.
Research by American Express has revealed almost half of all small business owners are unaware of this initiative. According to ATO data, less than 350,000 businesses claimed something under the program in 2016/17. In addition, the average dollar value claimed was only $11,000 which is far from the maximum amount of the threshold.
At AlphaFit, we recommend you have a good chat with your accountant to learn more about how to best take advantage of the scheme and add the improvements to your facility that you’ve been wishing for. To make this all a little easier to understand, here’s a quick rundown on the Instant Asset Write-Off initiative and how you could make it work for you and your business.
What is the Instant Asset Write-Off?
The scheme allows businesses with a turnover of less than $50 million (increased from $10 million in previous financial years) to claim immediate deductions on a purchased asset worth less than $30,000 (increased from $20,000 in previous financial years) in their tax return for that year. The assets must first be used, or installed for use, in the income year you’re claiming for. So, if you’re thinking of adding to your gear or upgrading your fitout, you must purchase and install your equipment before June 30, or else claim it next year in your 2019/20 return.
How is this different to previous asset deduction rules?
The main difference is that until May 12th, 2015, businesses were only able to instantly write off assets up to $1,000. Assets that exceeded that amount were only able to be written off partially every year via the relevant depreciation rate. Since the introduction of the $30,000 Instant Asset Write-Off, businesses can now write off the cost of the asset ($30,000 and under) in the same financial year as they bought it.
How much can I claim?
Businesses will be able to claim the write-off every time an asset under the cap is purchased through to the June 30, 2020 cut-off. The amount you can write off instantly will depend on when the equipment was purchased, first used or installed ready-for-use. The entire cost of the asset must also be less than the applicable instant asset write-off threshold. Thresholds have changed over the past few years, so we suggest you check the ATO website for full details. Here is a basic summary of the most recent changes to the amount you can claim:
- $30,000 - If purchased from 7:30pm (AEDT) 02/04/2019 to 30/06/2020
- $25,000 - If purchased 29/01/2019 to before 7:30pm (AEDT) 02/04/2019
- $20,000 – If purchased from 7:30pm (AEDT) 12/05/2015 to 28/01/2019
Does this mean I get a $30,000 tax refund for each asset?
Sadly, no – this is not free money. The scheme simply allows you to reduce the amount of tax your business has to pay. It enables you to instantly claim deductions of the full amount possible at the current tax rate for the larger purchases still under $30k instead of depreciating over time.
Take advantage of the $30,000 Instant Asset Tax Write-Off as EOFY approaches
Initially this initiative was launched in the 2015/16 financial year and has been extended on a year-by-year basis. With no plan to make the scheme permanent, there is no guarantee that the Government will continue it in the 2020/21 financial year. This means it could be the final year of the increased $30,000 claim threshold before being reduced back to the original $1,000 cap. Consider making the most of this opportunity for your fitness business while you still can.
We hope this general information helps you start investigating the $30k Instant Asset Write-Off further. Note there are also rules and restrictions around what kinds of asset purchases you can claim, what to do for purchases greater than the threshold, and how to claim deductions through the scheme in the best way for your business. For further detailed information on these topics and more, talk to your accountant or check the ATO website [here].
Other links that may be helpful for your fitness business:
- AlphaFit's flexible finance options
- ATO small business help
- Government grants and assistance
- Budget 2019-20