UPDATE: Small Business Asset Purchases: A Guide to the 2023-2024 Financial Year Changes

The Australian Government has updated the Instant Asset Write-Off Scheme for the 2024 financial Year: What Small Businesses Need to Know

From 1 July 2023 the Australian Government has introduced significant changes to the instant asset write-off initiative for the 2023-2024 financial year. Designed to provide immediate tax relief to eligible businesses, the updated scheme has important modifications that every small business owner should understand.

The previously temporary full expensing rules have now ceased from 30 June 2023.

What are the Key Changes

The instant asset write-off initiative, a tax-saving strategy by the Australian Government, now allows eligible businesses with an annual turnover of less than $10 million to deduct the full cost of assets valued at $20,000 or less (previously $150,000 or less). For assets exceeding this value, they must be depreciated. This alteration means that businesses can no longer claim temporary full expensing beyond 30 June 2023.

What Businesses are Eligible

The new scheme is applicable to businesses with an annual turnover of less than $10 million.

What Assets Qualify?

The instant asset write-off applies to all depreciable assets below the $20,000 threshold. Crucially, this threshold operates on a per-asset basis, allowing small businesses to instantly write off multiple assets.

Choosing the Right Purchase Method

When it comes to acquiring business assets, entrepreneurs have several options:

1.      Buy Outright: Purchasing the asset using your own funds enables you to own it outright and subsequently depreciate it.

2.    Finance Options:

   - Chattel Mortgage: This popular choice grants ownership from the beginning. You can tailor the loan duration (typically up to 5 years) and depreciate the asset.

   -  Finance Lease:  Although the lender retains ownership, you assume the risk of disposal. At the end of the term, you can take ownership after paying a residual amount. While you can’t depreciate the asset, you can claim monthly lease payments.

   - Operating Lease: You don’t own the asset under this option, returning it at the lease term’s end. While depreciation isn’t possible, you can claim lease payments.

   - Hire Purchase: In this arrangement, the lender purchases the asset for your business, allowing you to use it in exchange for regular payments. Your business gains ownership at the finance term’s end.

Understanding these methods is crucial, as they have implications for your ability to depreciate the asset and manage your finances effectively.

Planning for the Future and Making Better Decisions

As a small business owner, staying informed about these changes is vital for making strategic decisions. By understanding the current rules of the updated instant asset write-off scheme and choosing the right asset acquisition method, you can optimise your tax benefits and enhance your business’s financial stability.