TEMPORARY FULL EXPENSING OF DEPRICIATING ASSETS

The temporary full expensing rules provide businesses with a turnover of up to $5 billion with an immediate deduction for 100 per cent of the cost of eligible depreciating assets.

An instant asset write-off allows small businesses to claim immediate deductions for new or second-hand plant and equipment asset purchases such as vehicles, tools and office equipment. The assets must first be used, or installed for use, in the income year you’re claiming for.

When is the eligibility period?

A full deduction can be taken for eligible expenditure incurred from 7.30 pm AEDT on 6 October 2020 until 30 June 2022.

Which assets are eligible?

To be eligible for temporary full expensing, the depreciating asset must be:

  • new or second-hand (if it is a second-hand asset, your aggregated turnover is below $50 million) first held by you at or after 7.30pm AEDT on 6 October 2020
  • first used or installed ready for use by you for a taxable purpose (such as a business purpose) between 7.30pm AEDT on 6 October 2020 and 30 June 2022.

Small Business Entities with an annual aggregated turnover of less than $10 million can choose to apply the simplified depreciation rules.

Under the temporary full expensing rules, SBEs that apply the simplified depreciation rules will deduct:

  • the full cost of eligible depreciating assets that are first held, and first used or installed ready for use for a taxable purpose, between the Budget time and 30 June 2022;
  • the second element of cost of these assets and of existing eligible depreciating assets incurred during this period; and
  • the balance of their general small business pool.

The amount you can write-off will depend on when the asset was purchased and the associated threshold amount.

From 7.30pm (AEDT) on 2 April 2019 to 11 March 2020 the Government allows businesses with an annual turnover of less than $50 million to immediately write-off (expense) any purchases of items $30,000 and under.

From 12 March 2020 until 31 December 2020, as a result of the Coronavirus pandemic, the Government announced changes to the instant asset write-off: the threshold amount for each asset is now $150,000 (up from $30,000), and eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million).

If you buy an asset that comes under the threshold, you can claim the business portion of the asset’s use in your tax return for that financial year. You can claim a deduction for multiple assets as long as the cost of each individual asset is less than the relevant threshold.

INSTANT TAX WRITE-OFF

An instant asset write-off allows small businesses to claim immediate deductions for new or second-hand plant and equipment asset purchases such as vehicles, tools and office equipment. The assets must first be used, or installed for use, in the income year you’re claiming for.

An instant asset write-off allows small businesses to claim immediate deductions for new or second-hand plant and equipment asset purchases such as vehicles, tools and office equipment. The assets must first be used, or installed for use, in the income year you’re claiming for.

The amount you can write-off will depend on when the asset was purchased and the associated threshold amount.

From 7.30pm (AEDT) on 12 March 2020 to 30 June 2021, providing the asset is purchased by 31 December 2020, the Government allows businesses with an annual turnover of less than $500 million (up from $50 million) to immediately write-off (expense) each purchased asset under $150,000 (up from $30,000).

From 7.30pm (AEDT) on 2 April 2019 to 11 March 2020 the Government allows businesses with an annual turnover of less than $50 million to immediately write-off (expense) any purchases of items $30,000 and under.

If you buy an asset that comes under the threshold, you can claim the business portion of the asset’s use in your tax return for that financial year. You can claim a deduction for multiple assets as long as the cost of each individual asset is less than the relevant threshold.

The amount you can write-off will depend on when the asset was purchased and the associated threshold amount.

From 7.30pm (AEDT) on 2 April 2019 to 11 March 2020 the Government allows businesses with an annual turnover of less than $50 million to immediately write-off (expense) any purchases of items $30,000 and under.

From 12 March 2020 until 31 December 2020, as a result of the Coronavirus pandemic, the Government announced changes to the instant asset write-off: the threshold amount for each asset is now $150,000 (up from $30,000), and eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million).

If you buy an asset that comes under the threshold, you can claim the business portion of the asset’s use in your tax return for that financial year. You can claim a deduction for multiple assets as long as the cost of each individual asset is less than the relevant threshold.

INTERACTIONS BETWEEN CAPITAL INVESTMENTS INCENTIVES AND CONCESSIONS

The staged application of the various capital investment incentives and concessions means that there is an array of rules that might apply in relation to the acquisition of a particular asset.

An instant asset write-off allows small businesses to claim immediate deductions for new or second-hand plant and equipment asset purchases such as vehicles, tools and office equipment. The assets must first be used, or installed for use, in the income year you’re claiming for.

The Instant Asset Write-Off is generally more restrictive for the following reasons:

  • a cost threshold of $150,000 — there is no upper cost limit for full expensing;
  • the Instant Asset Write-Off is only available to entities with an annual aggregated turnover of less than $500 million — the turnover threshold for full expensing is $5 billion;
  • the asset must be first used or installed ready for use by 30 June 2021 — it is 30 June 2022 for full expensing; and
  • the asset must be acquired by 31 December 2020 — it is 30 June 2022 for full expensing.

However, in some circumstances, an immediate deduction will be available under Instant Asset Write-Off where it is not available under the full expensing rules:

  • where an entity with turnover of between $50 million and $500 million acquires a second-hand asset; or
  • where an entity acquired, or first used or installed ready for use, the asset on or after 12 March 2020 and prior to the Budget time.

From 1 July 2021, the Instant Asset Write-Off threshold will revert to $1,000. Therefore for the 2021–22 income year, a business entity will only be able to immediately write-off the cost of a newly acquired asset > $1,000 if eligible under the full expensing rules.

The amount you can write-off will depend on when the asset was purchased and the associated threshold amount.

From 7.30pm (AEDT) on 2 April 2019 to 11 March 2020 the Government allows businesses with an annual turnover of less than $50 million to immediately write-off (expense) any purchases of items $30,000 and under.

From 12 March 2020 until 31 December 2020, as a result of the Coronavirus pandemic, the Government announced changes to the instant asset write-off: the threshold amount for each asset is now $150,000 (up from $30,000), and eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million).

If you buy an asset that comes under the threshold, you can claim the business portion of the asset’s use in your tax return for that financial year. You can claim a deduction for multiple assets as long as the cost of each individual asset is less than the relevant threshold.

As a practical example “Joe Bloggs Grocery Supplies Pty Ltd” is presently looking to report a net profit for the June 2020 financial year of $60,000 – which they will end up paying tax of $16,500 on (at the adjusted company tax rate of 27.5%). If Joe was to purchase or finance (through a Chattel Mortgage) two items valued at $30,000 each totalling $60,000 prior to June 30 – he will completely offset his profit and not pay any tax for that year.*

This example would provide Joe with $16,500 of savings back to his business through reduced tax – which could be used to effectively purchase equipment or more than cover the interest costs to finance the equipment purchased.

For more information on the instant asset write-off visit the Australian Taxation Office website.

As a practical example “Joe Bloggs Grocery Supplies Pty Ltd” is presently looking to report a net profit for the June 2020 financial year of $60,000 – which they will end up paying tax of $16,500 on (at the adjusted company tax rate of 27.5%). If Joe was to purchase or finance (through a Chattel Mortgage) two items valued at $30,000 each totalling $60,000 prior to June 30 – he will completely offset his profit and not pay any tax for that year.*

This example would provide Joe with $16,500 of savings back to his business through reduced tax – which could be used to effectively purchase equipment or more than cover the interest costs to finance the equipment purchased.

For more information on the instant asset write-off visit the Australian Taxation Office website.

How can we help you to get the Immediate Tax write-off:

This example would provide Joe with $16,500 of savings back to his business through reduced tax – which could be used to effectively purchase equipment or more than cover the interest costs to finance the equipment purchased.

You don’t need to have the cash to go out and buy equipment to get the write-off. Geared can assist you with a Chattel Mortgage Loan facility – which will allow you to qualify for the immediate tax write-off.*

With a Chattel Mortgage, you “own” the equipment immediately, so it’s recorded in your business in the same way as a cash purchase. If financed through a Rental (Operating Lease) or Finance Lease, the purchase will not qualify for the Immediate tax write-off.

* This information does not constitute taxation advice and does not take into account your own individual financial circumstances. Please refer to your Accountant for taxation advice and information around whether you may qualify for the Instant Tax Write off.

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