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Setup costs v the small business instant write off. What’s the difference?

Setting up a business can be expensive.

Last week, we explored how the Small Business Instant write off works where assets of up to $20,000 purchased can be used to instantly reduce taxable income in the year of purchase.

This week, we investigate why sometimes, set up costs, don’t fit in that category.

The Small Business Instant Write off is capped at $20,000

Often times, setting up a small business involves purchase of equipment, and because it is a new installation, the asset isn’t necessarily limited to

For example, a new cafe being installed and fitted out by one supplier would most likely cost more than $20,000 despite individual equipment components being less than that – an oven even might not be installed unless fitted into work benches which need to be put together.

Because in this instance, the installation costs combined with the asset purchase exceed the $20,000 limit, it is likely you’d not be able to claim the instant write off.

You must not request a supplier to split an invoice so that you have amounts less than $20,000. The invoice will be viewed as one bill by the ATO.

How are setup costs deducted?

Setup costs that exceed $20,000 are deducted over the useful life of the total asset. Sometimes, this is the term of your lease, other times, it is based upon formula the ATO guidelines provide, such as 5 years or 10 years.

When we make a deduction, we use depreciation expense as the line item within your Profit & Loss to take the balance up.

For information on how setup costs would be treated for your business please contact us here.


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