Staff shortages due to COVID, business picking up as consumer confidence returns, the upcoming Federal Election, supply chain issues affecting operations, the war in Ukraine, rising costs, expected interest rate rise, flood damage and recovery….there is a lot happening right now. Events and influences which distract business operators from some of the key decisions they need to make. Decisions such as buying new equipment to take advantage of Instant Asset Write-off in this financial year. We provide a timely reminder of the benefits available with IAWO, the timeframe required to claim in 2021/22 and the equipment finance options suited to this tax measure.
Instant Asset Write-Off: The Catch-up
Straight up an urgent reminder: the deadline to claim in this financial year is to have the assets operating in the business by 30 June 2022. So you only have about 8 weeks to get the equipment sourced and the finance sorted.
IAWO has been available now for two years so most operators will already have considered it or at least seen the promotions for this measure in conjunction with equipment or vehicle advertisements. It was introduced by Treasurer Josh Frydenberg in April 2020 as part of the initial Government stimulus package as the effects on the economy of COVID-19 just started to be realised.
The objective of IAWO is to motivate businesses to invest in new equipment. The measure was amended several times in 2020 and re-named temporary full expensing. The reasoning behind its introduction – eligible business can write-off or claim as a tax deduction, the full purchase price of the equipment in that one year, the year it was acquired. That can represent a very attractive option to many businesses. The more equipment, plant, machinery, vehicles and other assets that businesses acquire, the more business activity across the economy.
For businesses, the more tax deductions effectively reduces taxable income and that means less tax payable in that year. The catch? Businesses and assets being purchased need to meet the eligibility criteria which we outline below.
Another key to using this measure is that the appropriate form of equipment finance needs to be utilised to allow the equipment to be depreciated in this way. Also see below for our coverage of the finance options.
It is not the first time the measure has been introduced in Australia. The current measure is in place until 30 June 2023 as confirmed in the recent 2022/23 Federal Budget.
Eligibility
Businesses should refer to the ATO website for temporary full expensing or Instant Asset Write-off for the specific details of eligible businesses and equipment. But in a nutshell the assets must be new to the business but can be second-hand. Other conditions are in place to cover a number of options.
Businesses need to meet the turnover threshold which covers the majority of business operations in Australia.
Equipment Finance Options
As mentioned above, the real key to being in a position to claim IAWO on the business’ tax is acquiring the plant, machinery or equipment with the suitable form of finance. For that purpose, Chattel Mortgage is considered most appropriate.
In order for an asset to be ‘written-off’ or more specifically depreciated, it must be listed in the balance sheet of the business as an asset. With Chattel Mortgage the ownership of the equipment is immediately transferred to the borrowing business when the finance/purchase is settled. As such. It is posted to the balance sheet and can be depreciated.
To illustrate this we explain the difference with another very popular form of finance, Leasing. With an Equipment Lease the ownership of the machinery remains with the lender. The borrowing business makes monthly lease payments. The major tax benefit of this form of finance is that the lease payments are treated as a business expense and hence a tax deduction.
Chattel Mortgage is available to finance a wide range of plant, machinery and equipment. This type of finance can be used by many types of businesses including SMEs, sole traders, large corporates and operations that require low docs, no docs and bad credit loans.
2021/22 Timeframe
For those intending to utilise the benefits for IAWO or temporary full expensing in this financial year, under the ATO guidelines, the eligible assets must be operational in the business by 30 June 2022. The measure is in place until 30 June 2023 but any equipment purchased after 1 July would be included in the tax return in the 2022/23 financial year.
The benefit is realised when the annual business tax return is prepared and submitted. So if IAWO is on your to-do list for this year, it’s time to get moving and source that machinery. Speak with one of our Jade Equipment Finance consultants for pre-approved finance prior to purchase to speed up the process.
Speak with a Jade Equipment Finance consultant on 1300 000 003 about pre-approved machinery finance to expedite the purchase for IAWO claims in this financial year.
DISCLAIMER: IF MISINTERPRETATIONS, MISREPRESENTATION OR ERRORS EXIST IN THIS ARTICLE, NO LIABILITY IS ACCEPTED. THE INFORMATION IS PROVIDED ONLY FOR GENERAL PURPOSES AND NOT IN ANY MANNER INTENDED AS THE ONLY SOURCE FOR MAKING FINANCIAL DECISIONS. THOSE THAT CONSIDER THEY REQUIRE ADDITIONAL GUIDANCE OR ADVICE SHOULD REFER TO AN INDEPENDENT FINANCIAL ADVISOR.
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