In 2020, the Government introduced tax depreciation incentives to help businesses recover from the impact of the COVID-19 pandemic.
To help eligible business entities understand which tax depreciation incentives are available, the ATO published a useful snapshot to explain the depreciation incentives that may apply and when businesses could consider using them.
What incentives are available?
The tax depreciation incentives that are available to eligible businesses are:
Temporary full expensing;
Instant asset write-off; and
Accelerated depreciation (“Backing business investment”).
Key points to note:
The instant asset write-off and accelerated depreciation (i.e. the Backing Business Investment measure) are available only where the asset is first used, or installed ready for use, by 30 June 2021, noting that for the instant asset write-off, the asset must have been acquired by 31 December 2020;
Temporary full expensing is currently available until 30 June 2022, but the Government announced in the Federal Budget 2021–22 that it proposes to extend this by 12 months by 30 June 2023;
Temporary full expensing is available to businesses with an aggregated turnover of less than $5 billion a year. The instant asset write-off and accelerated depreciation are available only to businesses with an aggregated turnover of less than $500 million a year. The instant asset write-off is not available to small businesses entities (aggregated turnover of less than $10 million a year) that do not choose to use the simplified depreciation rules;
Accelerated depreciation applies only to new assets. Temporary full expensing is available for second-hand assets only where the aggregated turnover is less than $50 million. The instant asset write-off can be used for second-hand assets as well as new assets;
Under the instant asset write-off, the asset must cost less than $150,000 – there is no cost restriction under temporary full expensing or accelerated depreciation;
Businesses can opt out of temporary full expensing and accelerated depreciation (but not the instant asset write-off) on an asset-by-asset basis. However, small business entities (aggregated turnover of less than $10 million) cannot choose not to fully expense their general small business pool balance on 30 June 2021.
So, if you are contemplating buying a depreciating asset and you want an immediate deduction for the full cost of the asset in the 2020–21 income year, you will need to consider:
your eligibility for the instant asset write-off rules;
the accelerated depreciation measure;
the temporary full expensing measure;
the date the asset is acquired and first used or installed ready for use;
the asset’s cost; and
the aggregated turnover of the business.
Assuming the proposed extension to the temporary full expensing to 30 June 2023 is legislated, assets acquired or first used or installed ready for use from 1 July 2023 will be depreciated under the uniform capital allowance system, or the simplified depreciation rules if the taxpayer is a small business entity and chooses to apply these rules.
Get in touch with us if you have any questions about the depreciation incentives.