2019-20 Budget: instant asset write-off threshold foreshadowed to increase to $30,000

Jack Malarkey

Well-Known Member
The Treasurer, the Hon. Josh Frydenberg MP, delivered the 2019-20 Budget on Tuesday 2 April 2019 at 7.30 pm eastern daylight saving time.

The instant asset write-off threshold below which relevant expenditure on depreciating items (such as cars and mobile phones) needs to be to obtain an immediate income tax deduction is proposed to be increased to $30,000.

Also access is proposed to be expanded to medium-sized businesses with an annual turnover of less than $50 million, up from $10 million.

Both of these changes are proposed to apply from 7.30 pm (AEDT) on 2 April 2019 to 30 June 2020.

(Budget speech: http://jaf.ministers.treasury.gov.au/speech/002-2019/.

Treasurer media release: http://jaf.ministers.treasury.gov.au/media-release/060-2019/)

These foreshadowed changes come on top of the earlier foreshadowed change to increase the instant asset threshold from $20,000 to $25,000 from 29 January 2019: see https://uberpeople.net/threads/fore...20-000-to-25-000-from-29-january-2019.313727/.

This means that the relevant thresholds are now proposed to be:

(1) $20,000 for purchases made up to and including 28 January 2019;

(2) $25,000 for purchases made on or after 29 January 2019 and up to just before 7.30 pm AEDT on 2 April 2019; and

(3) $30,000 for purchases made from 7.30 pm on 2 April 2019 through to 30 June 2020.

Legislative amendments are needed to make these changes.
 
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Jack Malarkey

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After introducing the Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019 in the Senate (expected later today, Wednesday 3 April 2019), the Government is proposing to move amendments to give effect to the further changes to the instant asset write-off as foreshadowed in the Budget.

The amended Bill would then need to return to the House of Representatives to ensure that it is passed in the same form by both Houses ahead of receiving Royal Assent.

For the text of the Government’s proposed amendments, see https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id:"legislation/amend/r6282_amend_4c95b020-2263-476b-a9d0-7baf64673865".
 

Jack Malarkey

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It’s important to note that for the instant asset write-off, the cost of the asset must be UNDER the threshold. So an asset purchased AT the threshold does not qualify for immediate deductibility.

If you are registered for GST at the time of purchase, you exclude the GST component of the purchase price when calculating the $30,000 threshold.

Let’s say that a car costs $32,945 with GST of $2,995 included. If the purchaser is registered for GST at the time of purchase, they reduce the purchase price by $2,995 resulting in an adjusted purchase price of $29,950.

As the adjusted purchase price is under $30,000, the purchaser is entitled to the instant asset write-off.

For more information about the instant asset write-off, see https://www.ato.gov.au/Business/Dep...ns/?page=4#Instant_asset_write_off_thresholds.

Keep in mind that it will often be in your better interest not to claim the instant asset write-off but to claim depreciation over several years.

Discuss these matters with your accountant.
 
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WestSydGuy

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As many drivers may be looking to switch to another vehicle, either at the end of this tax year or the start of the next tax year, how does a sale & purchase of an instantly written down vehicle impact taxable income?

This is where I feel many sole traders will have a surprise, they instantly write down a $29k vehicle, use it for 2 years say, then when it's sold for say, $14k, it would bump the taxable income, I guess usually another vehicle purchase would adjust this? I wonder what the most tax effective strategy would be for rideshare vehicles? Any suggestions?
 

Jack Malarkey

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As many drivers may be looking to switch to another vehicle, either at the end of this tax year or the start of the next tax year, how does a sale & purchase of an instantly written down vehicle impact taxable income?

This is where I feel many sole traders will have a surprise, they instantly write down a $29k vehicle, use it for 2 years say, then when it's sold for say, $14k, it would bump the taxable income, I guess usually another vehicle purchase would adjust this? I wonder what the most tax effective strategy would be for rideshare vehicles? Any suggestions?
@WestSydGuy, thanks for raising this important point.

The instant asset write-off is a form of accelerated DEPRECIATION (‘decline in value’) and not an ‘investment allowance’. This means that balancing adjustments are required on sale or other disposal of the depreciating asset.

The purpose of the balancing adjustment is to ensure that ultimately the owner of the depreciating asset obtains a deduction for, and only for, the actual decline in value over the period of ownership.

The Australian Taxation Office provides information about these rules here: https://www.ato.gov.au/business/dep...allowances/disposing-of-a-depreciating-asset/.

Broadly stated, drivers who have claimed the instant asset write-off will have a termination value of nil and have a balancing adjustment equal to the sale price. (The calculations also take into account any non-deductible private use of the depreciating asset.)

The voluntary purchase of a replacement car doesn’t stop this from happening.

A strategy may be to ensure that the sale of the old car takes place in the same income year as the purchase of the replacement car so that the deduction for the replacement car is available to offset the assessable balancing adjustment on the old car.

Alternatively, you might sell the old car in an income year in which your marginal tax rate is low or nil and purchase the replacement car in an income year where your marginal tax rate is higher so that you obtain the maximum benefit from the deduction.

The purchase of the replacement car might happen near the end of income year 1 and the sale of the old car might happen early in income year 2. This strategy may bring forward the deduction and defer the balancing adjustment.

Another thing to keep in mind is that a driver who has claimed a GST credit on purchase of the car needs to include GST in the sale price and pay the relevant GST to the Tax Office. See https://www.ato.gov.au/Business/GST...-and-transport/GST-and-motor-vehicles/?page=3.

The purpose of this GST rule is to ensure that the owner of the car ultimately obtains a GST credit only for the value lost during the period of ownership.

These depreciation and GST rules are complex and drivers would do well to obtain the assistance of their accountant.
 
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RoboRider

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@Jack Malarkey thanks for detailing the possible 'sting' to doing an instant asset write off, particularly if you should happen to stop driving for Uber. Is there any rule you are aware of that the asset must be sold at market value or will be assessed at market value if sold for less at some point in time in the future?
 

Jack Malarkey

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@Jack Malarkey thanks for detailing the possible 'sting' to doing an instant asset write off, particularly if you should happen to stop driving for Uber. Is there any rule you are aware of that the asset must be sold at market value or will be assessed at market value if sold for less at some point in time in the future?
Yes, the depreciating asset provisions provide that if a taxpayer is not dealing at arm’s length and sells or otherwise disposes of a depreciating asset for less than market value, the amount received is taken to be market value.

This is directed at stopping the taxpayer from obtaining a more favourable tax result from a balancing adjustment calculated on an artificially reduced disposal price.
 

RoboRider

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Yes, the depreciating asset provisions provide that if a taxpayer is not dealing at arm’s length and sells or otherwise disposes of a depreciating asset for less than market value, the amount received is taken to be market value.

This is directed at stopping the taxpayer from obtaining a more favourable tax result from a balancing adjustment calculated on an artificially reduced disposal price.
:frown:

So .. to try another angle ... what happens if your business use of the vehicle is 100% in the year you claim instant writeoff and then it drops to a lower % in later years but still has some business usage?
 

Jack Malarkey

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:frown:

So .. to try another angle ... what happens if your business use of the vehicle is 100% in the year you claim instant writeoff and then it drops to a lower % in later years but still has some business usage?
Broadly stated, the assessable balancing adjustment is reduced to the extent of non-taxable (including private) use throughout the whole period of ownership.

The Tax Office guidance material includes:

Non-taxable use

If a depreciating asset is used only partly for a taxable purpose, you reduce the balancing adjustment amount to reflect that non-taxable use. The reduced balancing adjustment amount is included in, or deducted from, your assessable income.

The non-taxable use proportion of the difference between the asset's termination value and its cost can constitute a capital gain or a capital loss.

Example

John receives $600 for a computer for which he originally paid $1,000. The computer has been used 40% for private purposes. At the time of sale, the computer's written-down value is $700.

John can claim a $60 deduction for the reduced balancing adjustment amount (60%, the taxable use proportion, of $700 less $600). A capital loss of $160 also arises (40%, the non-taxable use proportion, of $1,000 less $600).

(https://www.ato.gov.au/business/dep...allowances/disposing-of-a-depreciating-asset/)
 

WestSydGuy

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Yes, the depreciating asset provisions provide that if a taxpayer is not dealing at arm’s length and sells or otherwise disposes of a depreciating asset for less than market value, the amount received is taken to be market value.

This is directed at stopping the taxpayer from obtaining a more favourable tax result from a balancing adjustment calculated on an artificially reduced disposal price.
With depreciation for taxi/rideshare having an expected lifetime of 4 years for vehicles, how does market value come into the sale price? Is market value based on private usage or taxi/rideshare, hmmm.
 

Jack Malarkey

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With depreciation for taxi/rideshare having an expected lifetime of 4 years for vehicles, how does market value come into the sale price? Is market value based on private usage or taxi/rideshare, hmmm.
Market value is essentially what you’d expect in an open and unrestricted market a knowledgeable and willing but not anxious buyer to pay a knowledgeable and willing but not anxious seller of that particular car having regard to the condition and use of that car.

Market value comes into the picture only if the parties to the sale are not dealing at arm’s length.

See https://www.ato.gov.au/general/capi...hor=Meaningofmarketvalue#Meaningofmarketvalue.
 
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