In March, the federal government announced a fivefold increase to the Instant Asset Write-Off (IAWO) threshold to $150,000 and extended to businesses with annual turnover of up to $500 million, from $50 million. Businesses have until June 30 to take advantage of the higher threshold. New equipment, computer hardware, office fit-outs and furniture, and vehicles are among the assets potentially eligible for the write-off.
The instant asset write-off was first introduced in 2015 and has been extended every year. According to the Sydney Morning Herald, ‘in 2017-18, more than 360,000 businesses claimed deductions worth over $4 billion under the scheme.’
This much needed cash injection will help to keep businesses afloat however, the increased and expanded measure will only run until 30 June 2020, before reverting to its legislated $1,000 threshold and reduced eligibility to small businesses with a turnover of less than $10 million. While the write-off had been extended on a yearly basis in previous budgets, the postponement of this year’s budget to October has raised uncertainty over the future of the incentive, although Prime Minister Scott Morrison has declared that tax measures to encourage investment will be part of his JobMaker plan.
The short turnaround for accessing the higher threshold will have many businesses scrambling to get the cash together to make eligible purchases before the June 30 deadline. However, banks have been placing rigorous lending policies in place which make it difficult for businesses to access funding. In addition, banks have been inundated by finance applications which means the chance of receiving the funding to make purchases before the end of the month is becoming very unlikely.
Private lenders may be the saviour for small businesses in this period. Last month we published the article ‘The Role of Private Lenders During the Coronavirus Crisis’ in which we talked about how lenders like Private Mortgages Australia can assist businesses with short-term loans to tide them over until they can get back on their feet. This also applies for funding of instant asset write-off purchases.
If a business needs funding to purchase equipment, vehicles or any other business related asset then a private lender may be able to provide the finance within a matter of days rather than having to wait weeks to see if the banks will approve an application. Because private loans are secured by property, private lenders don’t need to assess the businesses serviceability. Therefore, if the businesses cash flow has been impacted by Coronavirus this won’t play a part in the way the businesses application is assessed. If the borrower has a genuine business purpose, sufficient equity in a property and a realistic exit strategy then they are likely to be approved for a loan. Another benefit of a short-term loan is that the interest payable on the loan is also tax deductible.
For businesses looking to take advantage of the increased threshold for the Instant Asset Write-Off scheme a short-term loan may be a great option, however we encourage all businesses to obtain their own taxation advice as individual circumstances have not been take into account in this article and should not be considered advice.
For further information about how we can assist you or your clients then please get in touch with General Manager – Relationships, Shanta Lobo on [email protected] or 1300 856 683.