Farmers need to be aware of the tax implications of writing assets off in the year of purchase, compared to depreciation, a taxation accountant advises.
This was particularly relevant because the Federal Government, through the Australian Taxation Office, was continuing to offer the option to claim an immediate deduction on the cost of an asset purchased during the year.
This includes assets purchased for combined business and personal use.
In the case of an asset purchased for combined business and personal use, the maximum $20,000 write-down amount could only be applied against the assets’ business use.
Farmers commonly purchased assets that were used for the farm business and personal use.
The 100 per cent instant asset write-off enabled up to $20,000 of that asset to be claimed in the year it was purchased, so long as that value applied against business use.
But this had tax concession implications, according to Ken White, accountant and principal of White’s Accounting and Taxation Solutions in Bairnsdale.
Depreciation enabled the value of an asset to be written-down over a period of years.
“Machinery, plant and equipment are depreciable over years,” Ken said.
“The depreciating value of these assets can be applied annually as a tax concession against the business.”
But if a farmer wanted to utilise the instant asset write-off, they would only accrue a tax concession against this asset in the financial year of purchase, Ken said.
He recommended farmers discuss this with their accountant to ensure they understand the implications of either decision on their farm business.