Everything you need to know about the instant asset write-off scheme

Instant Asset Write-off Scheme 2023: Everything You Need To Know

Because it enables firms to acquire assets and claim an instant tax credit, the Instant Asset Write-Off is one of the most debated tax advantages that are currently available for businesses. However, this does not imply that you should immediately start spending money in preparation for the conclusion of the fiscal year. This post will walk you through what the Instant Asset Write-Off is as well as its application. It will also provide some updates on other technicalities and eligibility requirements.

What is instant asset write-off?

The concept of instant asset write-off refers to a tax provision that allows businesses to immediately deduct the full cost of eligible assets purchased for business use rather than depreciating them over a longer period of time. This means that businesses can deduct the entire cost of qualifying assets from their taxable income in the year of purchase, rather than spreading the deduction over several years.

The best part is that it may be utilised for a variety of assets, provided that the cost of each item is lower than the appropriate threshold. Additionally, it can be utilised for both brand-new and pre-owned assets. If a small business wishes to qualify for the Instant Asset Write-Off, the company must first comply with the simplified depreciation criteria, and the write-off cannot be applied to any assets that fall outside the parameters of those rules.

Eligibility

The following factors determine whether or not an asset qualifies for an immediate write-off:

• your aggregated turnover, which is the sum of all of your company's ordinary income as well as the income of any connected firms.
• the time at which you first acquired the asset
• the moment it was initially put into use or installed in a state where it was ready for use
• having a cost that is lower than the criterion for the asset in question.

If your annualised turnover totals more than $500 million, you will not be permitted to employ the instant asset write-off method on any assets that you own. You cannot take advantage of the instant write-off of an asset if temporary full expensing is allowed for the asset.

Key Points to Know About The Instant Assets Write-off

Below are some points you should put in place if you ever consider the instant assets write off for your business.

1. Look into your books.

Keeping precise records throughout the year might help you avoid a lot of stress and wasted time when it comes time to close the books for the year. Remember that it is still very important to balance your bank account and credit cards at the end of the fiscal year, regardless of whether or not you have kept month-to-month accounting records. This will allow you to identify and correct any erroneous transactions.

2. Make sure that your numbers add up.

Ensure that your accounts receivable and payable are in order. Find out who owes you money and what they owe you, as well as what you owe to vendors, and pursue payments for work you've done this year. If you do this, you won't have to worry about payments needing to be collected and taxed the following year. We also recommend providing consumers with a greater number of payment methods to assist in preventing late payments.

3. Organise your receipts

When it comes to organising your receipts, using a cloud storage service that is automated can save you a significant amount of time. Simple and ingenious, all you need to do is take a photo of a receipt, whether it's one that was given to a client or one that you received for a purchase, and the cloud storage software on your phone will automatically store the image along with all of the information for safekeeping. This can be done with either a receipt that was provided to a customer or one that you received for a transaction.

4. Get familiar with your tax deductions.

Keeping your receipts for costs in order will be of great use to you when filing for tax deductions. Even though you probably already take deductions for a good portion of the costs associated with running your business on a day-to-day basis, you should make it a habit to review what kinds of costs are tax-deductible on an annual basis. Go to the Deductions page of the Australian Taxation Office website and read the information that is provided for each business type.

5. Run financial reports

The statement of income and expenses, the balance sheet, and the cash flow sheet are three of the most important reports that you should run at the end of each fiscal year. They offer a snapshot of the financial health of your company and help make decisions on budgeting and planning.

6. Take advantage of the immediate write-off of assets.

The Instant Asset Write-Off program offered by the Federal Government enables companies with annual revenue of less than $10 million to write off the portion of an acquired asset that pertains to their business. Therefore, if you purchase an asset such as a vehicle, a piece of plant or equipment, etc. and the asset is valued at less than the threshold, you are eligible to claim the portion of the asset's usage that is related to your business on your tax return for the relevant fiscal year.

7. Be current with the tax code.

Maintain current awareness of the modifications that have been made to the tax legislation, and become familiar with the tax breaks available to small businesses. The Small Business Newsroom of the Australian Taxation Office (ATO) is a helpful site that provides stories that are up to date as well as support.

8. Pay superannuation

If you are running behind on paying payments to your employees' superannuation accounts, you should know that these payments will no longer be tax deductible. When contributions are received by the super fund, only then are they considered paid; failure to make payments may result in the super guarantee fee, which cannot be deducted from taxable income.

9. Prepare yourself for the coming year.

After analysing the performance of your company over the past year, you can then use this data to formulate strategies for the company's future. Ask yourself if you were able to accomplish what you set out to do this year, what areas there are in which you may improve, and what you have learnt from those experiences. You will be able to save money and expand your company if you take the time to ponder and set goals for your company.

If you are unsure of any of the answers, feel free to speak with one of our friendly accountant. Please give us a call on 08 7480 2593 or send an email to info@thekalculators.com.au.