Tax Planning Strategy 85 | $20,000 Asset Write-Off

Small businesses can claim a tax deduction for depreciable assets they purchase for their business provided they cost less than $20,000 each. This measure started on 12th May 2015 and ceases on 30th June 2018. Examples include cars, furniture, art work, coffee machines, etc. With this strategy purchasing a $20,000 depreciable asset for the business will create a $20,000 tax deduction. The actual tax savings are dependent on the taxpayer’s marginal tax rates. For a company with less than $10m turnover this will be 27.5%. 

For an individual in the top marginal tax bracket this will be 49%. This strategy applies to small businesses. From 1st July 2016, the definition of small businesses is a business with a turnover of less than $10m pa. The depreciable assets can be brand new or second hand and can be purchased in Australia or overseas. There is no limit on the number of assets to be purchased or whether they are identical or not, but they must be installed and ready for use before 30th June 2018. 

The Federal Government introduced this measure to encourage small businesses to invest in their businesses and upgrade their depreciable assets. This will make them more productive so they will be more profitable in the long run. Although this strategy definitely saves tax, businesses should only invest in depreciable assets that add value to their business (otherwise they are better off giving the money to charity).