The Sting to Instant Asset Write-off
Many businesses have embraced the current instant asset write-off rules to expense a business asset 100% in the year of purchase. This is allowing businesses significant tax relief in the current climate. Politicly, it has been sold as a most generous strategy to assist businesses – this may well be true – BUT!
We would suggest this allowance of 100% write-off business assets in the year of purchase, may not be long term. At some point in time the government will change or end the instant asset write-off. When this happens consider what will be the impact on the cash flow of the business. Consider at some point in the future you will not need to buy more assets and so a similar impact may occur.
Consider where an asset is depreciated over its useful life you spread the write off over a number of years, with a higher claim in the early years and gradually reducing. Consequently, the impact is to reduce the tax you pay annually as a result of the depreciation expense deducted. Where the asset is funded often the cash flow impact of the repayments is offset by the tax you have saved, by way of the depreciation deducted.