The Instant Asset Write Off

Today I thought we would talk about tax incentives that are still open until the end of the year.

Now I must say from the outset; I am not an accountant. I’m not a fan of calculus and I would rather work with people than numbers.

Did you know that there is a one of a kind instant asset write down available for purchases up to $150,000? It was put in place to encourage business spending to attempt to limit the depth of the current financial recession we are in.

Here is the cliff notes description from the ATO: ‘Under the instant asset write-off, eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used, or installed ready for use.’

This asset write down is why all the car yards are bit dishevelled at the moment as I see a lot of businesses driving around in shiny new 4WD’s.

But did you know solar systems, energy efficient hot water systems and LED lighting are also eligible for this? These devices pay themselves anyway but if you can depreciate them out in one year they become significantly cheaper; about 28% cheaper in the right circumstances.

We have been flat out selling small to medium commercial solar systems for the last couple of months. A lot of businesses have had something of an ‘energy security renaissance’ moment with the COVID19 pandemic. Previously the power bill was just another thing to pay, another overhead amongst a ton of other overheads. But money comes in and money goes out. Then COVID19 hit. Lockdowns ensued and consumer purchasing patterns changed. Usual bankable cashflow was interrupted. Then these overheads with the power bill being a large one, looked daunting or even potentially insurmountable for some.

Luckily a lot of Tasmania was not hit as hard some states but certain sectors that relied on as overseas and interstate visitors were rocked hard and are still doing it tough. But for the first time many business owners (and I guess homeowners as well) realised not to rely on the status quo; that is: things staying the same and not the rock band I’m referencing there. Energy security was a real worry for the first time. Stock needed to be keep refrigerated. Lights needed to be kept running. Computers and servers needed to be kept running. But the cashflow wasn’t there to pay for the energy costs associated with running a business. Keep in mind COVID19 hasn’t disappeared yet, either.

Every single part of a business has an energy input cost. Whether it is electricity, gas, diesel for example, there is always going to be an energy exchange somewhere in the process. This is where DMS energy can help you out. We are the energy efficiency specialists for the North West Coast of Tasmania and we have been helping both businesses and Mum and Dad’s get their energy costs under control.

So lets have another look at the Instant Asset Write Off.

We picked up a nice little 50kW solar system the other day for a local business with high daytime electrical loads. Around 145 solar panels. Not huge but not small either but a good representative size for what a medium sized business may need.

When we took all the rebates and all the taxation benefits into account it was only going to cost the customer around $37,000 which sounds a lot but it was going to save them over $14,000 per year.

Payback period?

This is the amazing bit, as the it was estimated to have recovered its costs in 2.6 years. The lowest warranted period for the major components was 12 years so it had a warranted estimated rate of return of $170,000. Not a bad return for a $37,000 investment. 38% for every year of operation.

We can expect similar rates of return for hot water and LED lighting projects as well.

But there is a catch.

Like all good things, the instant write off will come to to an end and the 31st of December is when it goes from $150,000 to $1,000. This means the system has to be installed before the end of the year.

Properly designed and installed solar always has huge financial benefits for businesses but right now it is the best it has ever been.

If there is any business owners out there that would like to learn more, feel free to call DMS Energy 1300 502 599 or drop into 56 Sheffield Rd in Spreyton and we can show you some of our commercial projects in action saving our clients money and making them more profitable and resilient every day for years to come.