COVID-19 Tax Depreciation Incentives and Instant Asset Write-Off (IAWO)
Tax Nuggets Academy has done it again.
Joyce in her distinctive style to “rebel against boring” has kindly produced this short, simple and accurate video that explains all the ins and outs of IAWO (Instant Asset Write Off) and how to apply it in AssetAccountant™.
Tax Nuggets Academy has bought about $5,000 worth of filming and editing equipment and some of these are second hand so I need to see if I’m eligible for any of the incentives which allows me to immediately deduct the entire cost of the asset rather than depreciating it over the life of the asset which could be over 5 or 10 years.
Firstly, I must be carrying on a business which means if I’m merely renting out my property, I would not be eligible. But Tax Nuggets is definitely carrying on a business so we’re all good.
Next, I must check that these assets are depreciating assets because if they are capital works which are buildings or anything that’s permanently attached to a building then that’s not eligible.
All these assets are appreciating assets – so I call it all good.
Next question: Did I acquire the asset after 6 of October 2020 and did I start using them before 30 June 2022. Yes.
The government has announced that it will be extending the due date to 30 June 2023, but it has not been legislated yet so I acquired and immediately started to use the equipment around April 2021 so I go down the route to the next question. But if you acquire your asset before 6th of October 2020 you go down a different route which is subject to another video.
Next question: Is my turnover under 5 billion? A massive yes.
Next question: Is the asset in Australia or will it principally be used in Australia? Yes.
Next question: Is my turnover under 50 million? Yes.
And that’s it. No more questions or conditions to meet I can immediately deduct all these assets.
But if your business is more than $50 million in turnover you must meet a few more conditions because the government will not give you the incentive if you were already committed to buying the asset before they announced it in the budget in October 2020.
Sorry no second-hand assets.
But you could still potentially be eligible for full write-off if the asset costs under $30,000 or under $150,000.
Depending on when you bought these assets you may also be eligible for accelerated depreciation, which is under a separate bunch of rules.
So we’ve worked out Tax Nuggets is eligible for immediate deduction for tax purposes, but should I still be maintaining a fixed asset register for accounting purposes?
What if I need to get a bank loan?
The banks will look at my balance sheet and say “hey all your assets are worthless”!
So, I’m going to share with you this amazing software that I found called AssetAccountant™.
It basically allows you to maintain two separate asset registers – one for tax one for accounting simultaneously.
With just one click of a button you can get immediate write-off for tax purposes and then switch to your accounting asset register and still be able to maintain a healthy balance sheet.
You can even search the effective life of an asset from the ATO’s tax ruling from within the software and it automatically populates it for you like this.
It also integrates with Xero, which I use, but also a whole heap of other accounting systems.
So it’s got all the bells and whistles.
You can post journal entries, revalue/impair assets and then for tax purposes you can transfer assets into a pool as well.
The best thing about it is that it is free for the first 25 assets including integration.
AssetAccountant™ is free to use or trial for up to 25 assets.
I have seen a lot of niche products come and go but the one constant has been the lack of a decent fixed asset register. I was recently invited to see the latest incarnation and it did not disappoint. I am confident that both accounting firms and corporate clients will be lining up to use it – I have already been extolling the solutions’ virtues.
Alan FitzGerald - Founder, Practice Connections