Instant asset write-off: 101

Happy new year! From the Team at CFD, we wish you good health and prosperity in 2021!

For us, the new year brings new faces, with three new accountants joining our team. They’re all very experienced in business services and look forward to working with you and your families.

The new year also brings new challenges for all of us, so over the next few months through these emails and videos we’ll be sharing some insights and tips on what’s happening in the accounting world, to help you and your families understand, plan, and take advantage of the options that are available to you.

One topic that raises constant discussion is the instant asset write-off scheme for businesses, which during the pandemic was extended to assets up to $150,000.

This applies to the purchase of any business assets (plant, equipment, computers, cars, etc.) and represents an excellent strategic opportunity to acquire an asset for business use, as well as qualifying for a tax deduction.

But this is where the confusion often surfaces.

Clients often think that the instant asset write-off rules automatically allow for both an immediate tax deduction, and an equivalent tax refund. This is incorrect.

What the rules do allow for, is for the value of the asset to be deducted from business profit, thereby potentially lowering your business’ tax liability. The rate of tax saving is determined by the entity structure under which your business operates.

When deciding whether or not purchasing assets under the instant asset write-off scheme is a good strategic move for your business, you should apply a cost/benefit analysis, taking into account your cashflow and assessing the potential tax saving benefit.

Of course, we can help you navigate the details, so if you have any questions please don’t hesitate to get in touch.