The ability for small business entities to claim an instant asset write-off is not new. It was first introduced by the Labor Party in the 2012 financial year, and the only thing that has changed has been the cost limit.
When the instant asset write-off was introduced it applied to assets costing less than $1000. This then increased to $6500 for assets purchased between July 1, 2012 and December 31, 2013. This was reduced back to less than $1000 for assets purchased from January 1, 2014 up until May 12, 2015.
After the coalition won the 2013 federal election, in their second federal budget, the limit was increased to assets costing less than $20,000 purchased from May 12, 2015 up to June 30, 2016. Because of not holding the balance of power in the Senate the legislation allowing the deduction did not get passed until late in the 2016 year. This resulted in the instant asset write-off being extended to the 2017 year.
The instant asset write-off was extended for another year in the 2017 federal budget to assets purchased up to June 30, 2018, and, if the extension announced in the 2018 budget is passed, will also apply to assets purchased up to June 30, 2019.
The cost of the asset must be under $20,000, and the claim is limited to the business-use portion of the asset. This means for assets such as cars that have a mixed business and private usage, the business-use portion cost is not relevant to the $20,000.
For example a car that has a purchase cost of $22,000, with a business-use portion of 80 per cent resulting in a business asset cost of $17,600, the instant asset write-off cannot be claimed in the year it is purchased. The value is instead added to the asset pool and depreciated at 15 per cent in the first year, and at 30 per cent of the written down value for each year thereafter.
Q. I purchased a car in 2011 that was a 2002 make. As of July 1, 2017, I started a business and used the car for business and private purposes. I have kept a logbook that shows the business usage to be 80 per cent.
To claim depreciation for the car during the 2018 year can I use the market value of the car as at July 1, 2017, as the opening value? If that opening value is under $20,000 can I claim the amount outright as a small business entity, or do I have to allocate the amount to small business asset tool and depreciated at 15 per cent diminishing value?
A. Unfortunately under the instant asset write-off rules an asset must have been purchased during the relevant financial year. In your case, as you already owned the car, you will not qualify for the instant asset write-off. Instead 80 per cent of the value of the car at July 1, 2017, will be added to the asset pool and written off at 15 per cent for the 2018 financial year.
Max Newnham is a partner in TaxBiz Australia and founder of SMSF Survival Centre.