From Instant Asset Write off to Full Expensing of Depreciable Assets – what does it mean?

Temporary Full Expensing of Depreciable Asset Measures effective from 6^th October 2020

Enhancements to the instant asset write off rules as announced by the Treasurer in the 2020/21 Federal Budget became law on 14 October 2020 with the passing of Treasury Laws Amendment (A Tax Plan for the Covid-19 Economic Recovery) Bill 2020.  These changes took effect from budget night, 6^th October 2020 and enhance the existing instant asset write off and backing business investment incentives previously introduced

The instant asset write off measures in place prior to the 2020 budget announcements entitled businesses with an annual aggregated turnover of less than $500 million to an immediate tax deduction for the cost of a depreciating asset where that cost was less than $150,000 and first used or installed ready for use between 12 March 2020 and 31 December 2020.  This measure, as it stands, will continue to exist and has been extended to 30 June 2021, however, the ability to access immediate tax deductions has been expanded with introduction of the full expensing measures as outlined below.

Under the temporary Full Expensing of Depreciable Assets measures, Australian businesses with an annual turnover of less than $5 billion can claim the full value of all new depreciable assets first used or installed ready for use before 30 June 2022.  There is no cap on the value of the asset, removing the previous cap of $150,000 contained under the instant write off regime.  The assets acquired must be new depreciable assets or costs incurred in improvement existing depreciable assets.  Additional eligibility criteria includes the requirement for the asset to be located in Australia and principally used in Australia for the purposes of carrying on a business.

For businesses with an aggregated turnover of less than $50 million, the full expensing measure extends to the full cost of second-hand assets acquired from budget time that are first installed and ready for use by 30 June 2022.  For those businesses with an aggregated annual turnover of between $50 million and $500 million, an immediate deduction can be claimed for second-hand assets costing less than $150,000 if they are purchased by 31 December 2020 and installed ready for use by 30 June 2021.

In addition to these enhancements, small business entities with an aggregated turnover of less than $10 million can write off the balance of their general small business pool regardless of the balance at 30 June 2021 or 30 June 2022.

These new measures, whilst welcoming from a taxation point of view, have placed further complexities around business owners ensuring they apply the correct tax treatment to the depreciable assets they acquire.  We encourage business owners to seek guidance from their advisor should they be considering acquisition of depreciable assets to which they wish to apply these measures, noting that the tax aspect is only one factor to consider when making investments decisions for your business.

Below is an outline of the various instant asset write off measures as they have been modified which may assist you in understanding the measures applicable to you and your asset purchases should you have acquired an asset prior to 6^th October 2020.  If you need any assistance, please contact us at info@davidsons.com.au

Amendments from Economic Stimulus Measures effective from 12^th March 2020

The instant asset write off threshold was increased from $30,000 to $150,000 effective from 12^th March 2020 through until 30 June 2020.  This increase in the threshold was subsequently extended to 31 December 2020.  In addition to the threshold increase access to the write off was extended to businesses with an annual turnover of less than $500 million (up from the previous $50 million threshold).

Immediate Asset Write-Off rules updated on 2 April 2019

The immediate asset write-off is a deduction that eligible businesses can claim for the purchase of new or second-hand fixed assets. Examples of the type of assets that can be immediately written off include plant, vehicles, tools and office equipment.

There are three core eligibility criteria that must be met in order to access the immediate write-off:

1. The business purchasing the asset must qualify as a small business by having an aggregated business turnover of less than
   • $10 million from 1 July 2016*
   • $2 million for previous years;
2. The asset purchased must be used or at minimum installed ready for use in the income year the deduction is to be claimed;
3. The asset purchase must be less than a threshold which is different subject to the date the asset was acquired, the most recent threshold being set at $30,000.

*Businesses with a turnover of less than $50 million maybe eligible for the instant asset write off for assets purchased from 2 April 2019.

Benefits of the write-off

It is important to note that the immediate write off is not a free handout.  The concept of the write-off is that you are bringing forward tax deductions you would have claimed anyway.

The benefit comes from the fact that you can claim the full deduction in year one, reducing your tax liability in that year as opposed to a reduced liability over a number of years.

It is important to remember that when considering the purchase of an asset for your business, the asset must have an immediate benefit to your business and your cashflow must be able to support the purchase.

Important dates and corresponding thresholds

Need some help to work out your eligibility?

When calculating your eligibility, you will need the following information:

• Aggregated turnover
• Asset purchase price
• Date acquired

If you would like any further assistance assessing your eligibility, please contact our offices on (03) 5221 6399 or email us at info@davidsons.com.au.

Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.