You are a small business entity (“SBE”). You have been offered an opportunity to sell equipment you currently own to a financier who could provide the equipment back under a financing arrangement. The financier advises you would be able to claim the $20,000 instant asset write off.
Question: Is this correct?
The SBE $20,000 instant write-off temporarily replaces the existing write-off threshold of $1,000. Taxpayers (who are a SBE) can now claim an immediate deduction for the cost of assets that they start to use or have installed ready for use between 7.30 pm 12 May 2015 and 30 June 2017 provided the asset’s cost is less than $20,000. The temporary measure also applies to the general small business pool where the balance is less than $20,000.
The $20,000 instant asset write-off applies on a per asset basis and does not require the amalgamation of identical/similar assets. However, it is only available for taxpayers who are a SBE and provided they start to use the asset or have it installed ready for use for an income year. This prevents taxpayers from stockpiling purchases and claiming tax deductions for assets that they have no intention of using in the short term.
There appears to be some misconceptions surrounding the $20,000 instant write off concession. One that recently crossed our desk (and promoted by some financers) was the temporary disposal and reacquisition of existing depreciable assets under an asset refinancing arrangement. The misconception is that under this arrangement, assets previously owned can now be written off on the basis they are acquired post 12 May 2015.
However, we note the immediate deduction is limited to depreciable assets that were first acquired at or after 7.30pm on 12 May 2015 and first used or installed ready for use on or before 30 June 2017.
Requiring a depreciating asset to have been first acquired ensures depreciable assets that were previously acquired at an earlier time, temporarily disposed of, then reacquired at or after the 7.30pm start time cannot satisfy the acquisition requirement. They will have been first acquired prior to the relevant time/date.
There is also the general anti-avoidance provision to consider. While a specific provision has not been included under the amendments, the government has indicated that artificial or contrived arrangements will not have access to the $20,000 write off. This is addressed by way of examples in the relevant Explanatory Memorandum; in particular the example at 1.17 (as set out below).
1.17 Consistent with the objective of the increased threshold applying to newly acquired assets, it is not intended that assets acquired under artificial or contrived arrangements have access to the increased threshold, or indeed to the existing arrangements. An example of an arrangement of this kind would be where a number of related small business entities that earned income from similar income sources sold their assets to one another in order to satisfy the ‘first acquired‘ requirement and write off the full value of those assets under the increased threshold.
Accordingly, if something sounds too good to be true, it probably is. Take the time to investigate the claims and if you are still unsure of your circumstances, seek professional advice.