Utilising the Instant Asset Write-Off before June 30

The Background

We have fielded numerous enquiries of late from our clients seeking advice on finance and new equipment purchases prior to the Instant Asset Write-Off limit reducing on June 30 this year. The Instant Asset Write-Off is available for small and medium businesses (with less than $50m turnover) to write-off the full cost of equipment under $30,000 purchased during this financial year. Once June 30 hits, the Instant Asset Write-Off will revert back to $1,000. As a result, we are strongly advising our clients who are considering a purchase, to do so prior to June 30th 2020 to take advantage of this tax benefit.

What are the Benefits of Utilising the Instant Asset Write-Off?

By taking advantage of the Instant Asset Write-Off, you can claim the full depreciation in this year, even if you only own the asset for a few days and get your GST back.

Parameters around claiming the write-off include

• Multiple assets can be written off in the one year;
• Items can be new or used;
• Asset must be first used, or installed and ready for use, by 30 June 2020; and
• Cost of asset can’t exceed $30,000.

AAG in Action

Consider the example of John who owns his own plumbing business. In March 2020, John is planning to purchase a new vehicle for his business valued at $28,000. He’s also thinking about buying a new trailer for $15,000. Both will be used for business purposes. We would recommend to John to finance both purchases over a 5-year term with each purchase secured by the respective piece of equipment with no balloon payment (residual) at the end of the five years.

The tax benefit looks like this:

Vehicle Cost	$28,000
Trailer Cost	$15,000
TOTAL Equipment Cost (all deductible)	$43,000
Less GST Refund (1/11)	$   3,909*
Instant Write-Off	$39,091
Tax Saving at 27.50% (company tax rate)	$10,750*
Net cost after tax in year 1	$28,431

Assume the current car finance rate is 4% per annum and trailer finance of 5% per annum.

The monthly repayments worked out like this:

Vehicle Finance:	$530 per month
Trailer Finance:	$293 per month
Total Finance cost per month:	$825 per month

In the end, the tax and GST savings totalling $14,659* are the equivalent of nearly the first 18 months of your finance repayments.

The Result

Making the Right Financial Decision to Take Advantage of Tax Breaks

From a business cash flow perspective, we would encourage John, and our clients, to finance asset purchases against the particular assets being purchased as opposed to cash reserves from the business or personal equity belonging to the directors. Why? Because this way, you can pay off your home loan, school fees or other personal debts that are not tax-deductible. Financing directly secured by the assets allows John to take advantage of the Instant Asset Write-Off and make a more sound financial decision.

Our Finance team also recommends that you get a finance Pre-Approval before you buy so you are better equipped to negotiate a better deal from the supplier.

We are assisting our clients, through our Finance team AustAsia Finance Brokers, to get Pre-Approvals, maximise their tax deductions and GST refunds prior to June 30, 2020. If you are looking to make an equipment purchase prior to June 30 to take advantage of the Instant Asset Write-Off, get in touch with us today. Even for those looking at purchasing an asset over $30,000, we can still assist you with taking advantage of increased depreciation deductions to help you save tax.

For more information, please contact us on (08) 9227 6300 or email at clientservices@austasiagroup.com, or direct to our finance team, aafb@austasiagroup.com.