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Instant asset write-off and temporary full expensing

 

The government has introduced temporary tax depreciation incentives that could help your business get the equipment you need. Here’s what you need to know. 

Temporary depreciation incentives can be a complex topic so it’s important to seek your own independent tax advice relevant to your circumstances. The main temporary tax depreciation incentives currently available to eligible businesses include:

What’s the temporary full expensing incentive?

Through the government’s temporary full expensing incentive, eligible businesses may be able to claim an immediate upfront deduction for the cost of eligible assets used for their business in their tax return.  

What businesses are eligible for the temporary full expensing incentive? 

Businesses are generally eligible if they have an aggregate turnover of less than $5 billion or a corporate tax entity that meets the alternative income test. 

What assets are eligible for temporary full expensing? 

Eligible assets are generally depreciating new assets first held, used or installed ready for use for taxable purpose between 7:30pm AEDT on 6 October 2020 and 30 June 2023 and costs of improvements incurred during that period.  

Small and medium business with an annual turnover of less than $50m may also claim immediate deduction for the cost of eligible second-hand assets. 

There are a range of exclusions on eligible assets for businesses that have an annual turnover more than $50m and eligible businesses that qualify under the alternative income test. 

What’s the instant asset write-off?

If the temporary full expensing incentive doesn’t apply to you or your business isn’t eligible, you may still be able to claim an immediate deduction as an instant asset write-off for the cost of the assets, if purchased by 31 December 2020 and first used or installed ready for use before 30 June 2021.  

What businesses are eligible for instant asset write-off? 

Eligibility for instant asset write-off depends on your aggregated turnover, the date when you purchased the asset, when it was first used or installed ready for use and the cost of the assets being less than the threshold.  

You are not eligible to use instant asset write-off on an asset if your aggregated turnover is $500 million or more. 

What assets are eligible for instant asset write-off? 

Instant asset write-off can be used for multiple assets, if the cost of each individual asset is less than the relevant threshold, new and second-hand assets.

The instant asset write-off eligibility criteria and threshold have changed over time. You need to check your business’s eligibility and apply the correct threshold amount depending on when the asset was bought, first used or installed ready for use. 

Backing business investment – accelerated depreciation incentive.

If the immediate upfront deduction is not available under temporary full expensing and instant asset write-off, eligible businesses with an aggregated turnover of less than $500m may be able to claim accelerated rate of depreciation on certain eligible assets under the backing business investment – accelerated depreciation incentive. This deduction is only available in the 2019/20 and 2020/21 income years.  

Only one incentive can apply for an asset. You must seek independent tax advice to determine if you are eligible to claim immediate deduction under the temporary full expensing, instant asset write-off or backing business investment incentive based on your individual circumstances.  

Financing your assets can help  

If you’re hoping to take advantage of these temporary incentives but need funding, financing might be an option.  

The Detail

The taxation position described is a general statement and does not take into account your specific circumstances. It is based on current tax laws and interpretation and should only be used as a guide. It does not constitute tax advice and you must seek your own independent tax advice that relevant to your circumstances.