07, May, 2020

Expanded instant asset write-off and your small business

Businesses of all sizes are feeling the economic effects of COVID-19. But small businesses are being hit the hardest.

“Small businesses are obviously being impacted the most,” says Pasquale Petrucci, ORIX National Manager of Small and Medium Enterprise. “Their cash flow and balance sheets are under pressure at the moment,” says Petrucci.

In March 2020, the federal government introduced a $17.6 billion economic stimulus package to help Australian businesses navigate these unprecedented times. It includes an expansion of the instant asset write-off scheme with increased thresholds for eligible assets and businesses.

What is the instant asset write-off scheme?

According to the ATO, the instant asset write-off scheme allows eligible businesses to, “immediately write off the cost of each asset that costs less than the threshold” and “claim a tax deduction for the business portion of the purchase cost in the year the asset is first used or installed ready for use. (Some exclusions and limits apply.)

From 12 March 2020 until 30 June 2020, the threshold for the cost of a new or second-hand asset has been raised from less than $30,000 to less than $150,000. The annual turnover threshold for eligible businesses was raised from less than $50 million to less than $500 million. This now covers more than 99% of Australian businesses.*

Petrucci says his team has received many vehicle applications and inquiries recently, largely driven by the pending 30 June 2020 deadline to take advantage of the expanded instant asset write-off.

Visit the ATO website to learn more about the scheme.

Is the instant asset write-off right for you?

Before you make any asset purchase decisions, it’s important to talk to your accountant or financial adviser.

“The instant asset write-off could help some businesses withstand and recover from the effects of COVID-19,” Petrucci says. By potentially lowering your tax bill at the end of this financial year, it may provide some flexibility with cash flow while the environment is still uncertain.

“Let’s say a business was already planning to add three vehicles to their fleet across the next six months,” he explains. “This might make it most tax-effective to bring the purchases forward. Any money saved on tax can then be put to operational use – such as wages, rent or maintenance costs.” The previous $30,000 threshold made it difficult to apply to business vehicles. From July 1, the threshold reduces to $1,000 for businesses with turnover of less than $10 million^, so if you are interested, you need to move quickly.

Financing considerations

If you don’t want to pay for the assets upfront but still want to take advantage of the instant asset write off, you may want to explore chattel mortgages.

“A chattel mortgage is one of the few finance options available that allows you to take legal ownership of equipment from the time of purchase, so you may be eligible for the instant asset write off,” Petrucci says.

With a chattel mortgage, you own the asset legally while you pay back the mortgage over an agreed contract period. ORIX offers flexible repayment periods from one to five years, and the ability to increase the size of the balloon payment to reduce monthly payments.

“When you add in the fleet discounts ORIX can secure nationwide, along with our competitive finance rates, it can be a cost-effective way to purchase your vehicles,” says Petrucci. “We know how busy it is when you’re running a small business, so we do everything possible to save our customers time – you can add in optional service cards to make it simpler to track fuel and other running costs, with the added benefit of one consolidated monthly invoice covering all expenses. In addition, ORIX’s OneView online portal provides our customers with access to a range of reports and vehicle management data.”

How the instant asset write-off works

There are exclusions and limits to using the instant asset write-off for a business vehicle, including but not limited to the current ATO’s car limit of $57,581 for simplified depreciation. Visit the ATO for some detailed examples on how this works.

Contact your accountant or tax adviser for more information on your business’ specific circumstances.

Business from a safe distance

Keeping yourself and your team safe is the top priority in these uncertain times. You can add new vehicles to your fleet before the expanded instant asset write-off ends on 30 June 2020 – without having to visit a dealership.

You can research, compare and purchase hundreds of vehicles for your business online with VOOM. VOOM tied for Best Innovation in Property, Construction and Transport on the 2019 AFR Boss Most Innovative Companies List. Get in touch with the ORIX small business team by calling 1300 134 385 or emailing info@voom.com.au. We can discuss your options and help you decide if adding new assets makes sense for you today.

 

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* https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Support_for_business_investment.pdf

^ https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Support_for_business_investment.pdf

The information provided in this email is of a general nature, may be subject to change and should not be construed as specific advice or relied upon as such. While ORIX Australia Corporation Ltd (ORIX) uses reasonable efforts to provide current information, ORIX does not warrant the accuracy, currency or completeness of the information. You should seek tax, legal or other professional advice before acting or relying on any content.