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.

In the event the asset has been subject to the instant asset write-off allowance and therefore, in future years, there is no deduction for depreciation expenses, you are left to fund the monthly repayment/debt reduction and a tax liability, based on the income equivalent to the deprecation expense. In most instances where depreciation is deducted over time, by the time the depreciation expense has reduced so has the funding requirements on the asset.

Our suggestion is to ensure you cash up your balance sheet and prepare your cash flow and profit & loss projections to understand the impact on both.

Ensure you are able to survive past the 100% instant asset write-off!

If you would like more information on this article, please give our office a call on 03 58 311 466 or email admin@jhco.com.au

Get In Touch



10 Edward Street
Shepparton, VIC, 3630


Mon-Fri: 8:30am – 5pm