Tools and equipment deductions for tradies: write-off, depreciation and GST

The instant asset write-off

A small business can deduct the full cost of a depreciating asset in the year it is first used or installed, provided the cost is under the threshold for that year. The threshold has been $20,000 per asset in recent years and is set annually, so check the ATO for the current figure before a big purchase. It applies per asset, so a $9,000 drop saw and a $6,000 laser level are both written off in full even though together they exceed $15,000.

The deduction is at the business-use percentage. A tool used entirely for work is 100%; a ride-on mower used for jobs and at home is apportioned. Full detail in the instant asset write-off explained.

Over the threshold: depreciation

An asset that costs the threshold or more is depreciated over time rather than written off. Small businesses using simplified depreciation put it in the general small business pool, which is deducted at 15% in the first year and 30% of the remaining balance each year after, regardless of the asset’s actual life. A $30,000 excavator attachment gives a $4,500 deduction in year one and $7,650 in year two. The alternative is to depreciate each asset over its effective life. Your accountant will use whichever suits your return; either way the GST is claimed up front, not spread out.

What counts as a separate asset

Generally, each item that functions on its own is its own asset: the drill, the battery pack, the charger. A set that only works together, such as a scaffold system or a complete kit sold and used as one unit, may be treated as a single asset, which can push it over the threshold. If you are close to the line on a large kit, ask your accountant before you buy how it will be treated.

Immediately deductible running costs

These are ordinary expenses, deducted as you pay them, no threshold involved:

• Consumables: blades, bits, discs, sandpaper, fixings, gas, welding wire.
• Repairs and maintenance of existing tools. Replacing a worn part is a repair; buying a new tool is an asset.
• Equipment hire for a specific job.
• Tool insurance and the tool-cover component of your vehicle policy.
• Tool bags, boxes and van fit-outs under the threshold.
• Calibration, testing and tagging, safety inspections.
• Protective gear: see uniforms and protective clothing.

Stolen, lost and sold tools

If a tool is stolen or destroyed, you can claim the remaining un-deducted value as a deduction in that year. If it was fully written off already, there is nothing left to deduct, but any insurance payout is assessable income. If you sell a tool, the sale price is income to the extent of what you previously deducted on it, so a written-off $3,000 saw sold for $1,000 adds $1,000 to your income. Keep a simple asset list with purchase date, cost and what happened to each item; it makes these adjustments trivial.

GST on the BAS

If you are registered, the GST on a tool purchase is claimable in full at the business percentage on the BAS for the quarter you bought it, whether the item is written off or depreciated for income tax. A $4,400 tool gives a $400 credit at 1B that quarter. You need a tax invoice for anything over $82.50. On the full BAS form, tools go at G10 (capital purchases) rather than G11; on the simpler BAS only 1B matters.

Records

The receipt or tax invoice for every purchase, a note of the business percentage for anything with private use, and an asset list for items over the threshold. Supplier accounts at the big hardware and trade stores can email monthly statements; keep those too. Upload your bank statement to FlowFi and it categorises hardware and tool purchases, flags larger items as equipment so you can decide write-off or depreciation with your accountant, and claims the GST on the BAS for you.