Take advantage of the tax deductions before 30 June 2023
What is the IAWO (Instant Asset Write-Off) Scheme?
The IAWO Scheme offers a tax benefit offered to eligible businesses that acquire depreciable assets. The 22/23 financial year is the final period in which this incentive is available as the program ends on 30 June 2023. The asset must be used, or installed ready for use, prior to this date.
Eligible businesses are permitted to claim immediate tax deductions for the entire cost of qualifying assets, excluding GST. There are no limitations on the number of qualified assets or the asset’s value. When the IAWO was extended, it was dubbed ‘Temporary Full Expensing’ – for which deduction claims can be lodged via your 2022/23 income tax returns.
What is the TFE Scheme?
The temporary full expensing initiative aids businesses and encourages investment. It allows eligible companies to claim an instant tax deduction for the business-related portion of an asset’s cost in the year it’s initially installed or set up ready for use.
To qualify for the program, businesses must meet specific requirements, including
An annual business aggregated turnover of less than $5 billion
Corporate tax entities need to meet the alternative income test
Deductions can be claimed for both new and used assets as long as the below criteria are met
- New assets – first used or installed and ready for use for a taxable purpose between 7:30 pm AEDT on 6 October 2022 and 30 June 2023
- Used assets – the asset was first held, first used or installed ready for use for a taxable purpose between 7:30 pm AEDT on 6 October 2022 and 30 June 2023**
** For second-hand assets, the business’ aggregated turnover must be less than $50 million
This tax deduction scheme can benefits businesses in multiple ways, including
- Reducing the cost of expansion
- Mitigating the impact on cash flow by utilising existing equipment or assets as collateral for borrowing
- Claiming the deductions in one lump sum can reduce the amount of tax you pay over the FY
- Providing flexibility in payments terms that align better with the company’s cash flow
- Lowering recurring payments by arranging for a balloon or residual payment at the end of the loan term.
Assets that will be used for both business and personal purposes
Businesses can only claim tax deductions for the percentage of the asset that will be used for business use. For instance, if an asset is used 40% on personal and 60% on business use
New asset: $60,000
Business use (60%): $36,000
Personal use (40%): $24,000
The total amount eligible as a deduction under the IAWO scheme: $36,000
It should be noted that motor vehicles, designed to carry a load of less than 1 tonne and less than 9 people are capped at the “car limit”, being $64,741 (incl GST).
For a detailed overview of the IAWO scheme, please visit the ATO website. If you think your business could benefit from the IAWO scheme, please contact your Pacific Finance Broker at 08 9321 2120, or send us an email via email@example.com
Disclaimer: Please note this does not constitute taxation advice and you should seek clarification from your normal taxation advisor.