Is it required for an asset which costs $20,000 to be capitalized
Scenario:
I have a small business entity that purchased an asset for $22,000 including GST (net $20,000). The instant asset write-off provisions indicate that you can write off assets less than $20,000 and assets $20,000 or more are capitalised. On this basis, I need to capitalise the asset for $20,000 rather than an expense to profit and loss account. Is this interpretation correct?
Explanation:
The small business $20,000 write-off threshold is $20,000 exclusive of GST. So, assuming the business in question is registered for GST, any asset with a GST-exclusive cost of less than $20,000 can be expensed through the profit and loss account immediately. Note that the rules apply to assets that cost less than $20,000. So, if this asset actually did cost $20,000 (with or without GST), it would not qualify and would have to be capitalised. An asset costing $19,999, however, would qualify.