$150k instant asset write-off extended for 6 months

Posted on 17th June 2020 by Christabelle Harris

The Australian Government continues to support small business with the announcement that it will extend the $150,000 instant asset write-off for six months to 31 December 2020.

Australian businesses with annual turnover of less than $500 million will be able to take advantage of this extended timeframe to invest in assets to support their business as the economy reopens and Coronavirus health restrictions continue to be eased.

Without the extension, the instant asset write-off threshold of $150,000 would have reverted to the $1,000 threshold and be accessible only to small businesses with a turnover of less than $10 million after 30 June.

Instant Write-Off for Small and Medium Businesses 

Small and medium businesses are able to claim an immediate tax deduction for each asset that costs less than $150,000 (net of GST credits), to the extent the asset is used for tax-deductible purposes.

This new threshold of $150,000 applies for a limited time only for depreciating assets first used or installed ready for use between 12 March 2020 and 31 December 2020.

Assets that cost $150,000 or more will not be eligible for the immediate deduction but they may be eligible for the backing business investment (BBI) discussed later.

Small and Medium Business Entities

Only small and medium businesses that meet the definition of a small business entity (SBE) or medium business entity (MBE) will be eligible for the instant write-off.

SBEs are broadly all those businesses with an aggregated turnover of less than $10m. MBEs are broadly all those businesses with an aggregated turnover of $10m or more, but less than $500m.

Aggregated turnover includes the turnover of connected and affiliate entities and persons.

New and Secondhand Assets

Both new and secondhand assets can be eligible for the instant write-off.

Are all Assets Eligible?

Most tangible assets that decline in value over time will be eligible for the instant write-off, except a small number of exclusions. Among the excluded assets are trading stock items, land, non-farming buildings and capital works, horticultural plants, water facilities, fodder storage assets and farm fencing. These items all have their own tax treatment.

Motor vehicles will be eligible assets however the car cost limit ($57,581 for 2019-20) will still apply to cap deductions for ‘cars’, being a vehicle mainly designed to carry passengers and designed to carry a load of less than one ton and fewer than nine passengers.

Backing Business Investment (BBI) Deduction 

There is another tax incentive for small and medium businesses that acquire assets that do not fit within the cost limit or time frame of the instant asset write- off.

Small and medium businesses are able to claim an immediate deduction of 50% of the cost of each new asset located in Australia on installation, with existing depreciation rules applying to the balance of the asset’s cost.

The asset must be a new asset and must be first held and first used or installed for a taxable purpose between 12 March 2020 and 30 June 2021. 

The BBI will, therefore, last one year longer than the increased instant asset write-off.

There is no cost limit, however, the usual car limit will still apply to cap deductions for a car.

The BBI applies to the same types of assets as the instant asset write off, however, unlike the instant asset write- off the BBI only applies to new assets (i.e. not a second-hand asset).

An asset is not eligible if the asset was acquired before 12 March 2020 or there was a commitment to hold the asset before 12 March 2020 (e.g. a contract to acquire the asset entered before 12 March 2020).

The application of the above measures can deliver a big tax saving for businesses however there are a number of traps for businesses that are part of a larger group. We encourage anyone thinking of taking advantage of the increased write off limits to contact us on (08) 9316 7000.

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