With Australian small businesses across many industries feeling the pressure of the economic downturn triggered by COVID-19, the extension of the governments Instant Asset Write-Off scheme is a welcome announcement. The scheme was due to end on EOFY 31 June but has been extended until the end of 2020.
Originally offering an immediate deduction with a threshold amount for each asset of $30,000, the program is designed to support small businesses and encourage them to continue to invest in their own growth and expansion. At the beginning of the COVID-19 pandemic, the threshold was extended to $150,000 as an incentive for more businesses to take part. Eligible businesses are those with an aggregated turnover of less than $500 million, however you can check your full eligibility here.
Whilst some advocates are pushing for the scheme to be made permanent in order to help bolster the growth of the counties small business sector, others are highlighting the $300 million cost of just extending the scheme another 6 months.
The government states that the extension will help support over 3.5 million small businesses who purchase new or used assets over the period. By enabling business owners to deduct the asset value in one hit rather than spacing it out over several years, cash flow and growth timelines can be improved. However, there is speculation of the schemes success as research suggests that many operators do not have the initial capital required to purchase the assets.
However, if this is the case there are several options which will allow small business owners to take part in the scheme. Utilising equipment financing is an option that allows for the immediate purchase of assets without having to dip into the businesses cash reserves. Common options are Operating Lease and Chattel Mortgage solutions.
Under a Chattel Mortgage loan, borrows own the assets from the outset and pay off the value over a set term. This allows business owners to depreciate the assets on their balance sheet, as well as have the potential to claim a tax input credit for any applicable GST on the purchase. Whereas under an Operating Lease the financier owns the equipment over the term of the loan, and at the end a residual value is paid to transfer ownership. The option is generally 100% tax deductible and popular among small business operators.
The extension of the Instant Asset Write-Off scheme is an opportunity for small businesses to invest in their growth and recovery post COVID-19. Whether owners are looking to invest in new technology, operating equipment or machinery now is a great time to consider purchasing.