For Assets Below $150K
The Government has now enhanced and extended the availability of the instant asset write-off concession. The threshold has increased from $30,000 to $150,000 from 12 March and is extended to 31 December 2020. This extension now means that businesses will be able to claim accelerated depreciation on purchased plant item worth up to $150K for the remainder of the year. This threshold of $150k can be used for multiple assets as long as the cost of each individual asset is less than the relevant threshold. It also includes new and second hand assets.
The cost threshold has changed many times:
From 1/1/14 to 12/5/15 – less than $1,000;
From 13/5/15 to 28/1/19 – less than $20,000;
From 29/1/19 to 2/4/19 – less than $25,000;
From 3/4/19 to 11/3/20 – less than $30,000;
From 12/3/20 to 31/12/20 – less than $150,000
From 1/1/21 – less than $1,000.
It is worth noting that the $150K immediate asset write off threshold is only available if the following factors are present:
The asset was first acquired at or after 7:30pm AEST on 12/3/20;
The small business entity first starts to use the depreciating asset, or has it installed ready for use (for a taxable purpose) on or after 12/3/20 and it is completed by 31/12/20;
The cost of the asset (net of GST) is less than $150K. This includes all parts of the plant purchased;
The taxpayer is a small business/medium (i.e. turnover over of less than $500m) entity in the relevant income year and it chooses to use the simplified SBE depreciation rules.
There is a sting in the tail of this arrangement, and that is – for any assets purchased under the above arrangement, the sale proceeds become fully assessable when you sell it. Another trap to be aware of is that if the asset being purchased is a passenger vehicle, there is a depreciation cost limit applicable of $57,581 and the instant asset write off will be capped at that point.
For Assets that Cost Above $150K
There has been introduced an accelerated depreciated concession for eligible SBE businesses for plant items over $150K. This concession is available only for the 2020 and 2021 years. It allows a small business entity to claim an additional 50% depreciation in the year of purchase for a qualifying asset.
What is a “qualifying asset” for the purposes of the accelerated depreciation concession?
The taxpayer starts to hold the asset in the period beginning 12/3/20 and ending on 30/6/21;
The taxpayer starts to use the asset or has it installed ready for use for a taxable purpose in the period 12 March 2020 to 30 June 2021.
The asset is a new asset (i.e. not second hand);
The taxpayer had not made a commitment in relation to the construction or purchase of the asset prior to 12 March 2020;
An immediate deduction is not available in respect of the asset under the instant asset write off;
The use of the asset will be principally in Australia.
Examples
I buy a second hand tractor for $143K including GST. $13K is claimed back in my BAS for that quarter – leaving $130K. Under the new asset write off provisions, I can claim a tax deduction of $130K in the year of acquisition, so long as the tractor is delivered and is available to start work in the relevant year.
I purchase a farm shed for $80K (GST exclusive) in June 2020 and it is erected by November 2020. I can claim the full deduction for the shed in the 2021 year since the shed wasn’t available for use by 30 June 2020.
I purchase a 1 tonne tray top ute (single cab) for $75,000 (GST exclusive) and take delivery of it in June 2020. I can gain the tax deduction of $75K in the 2020 financial year. There will not however be any carry on benefit of depreciation in the 2021 financial year.
A new Toyota Sahara is purchased in August 2020 for $110K (GST exclusive) and it is used 80% for business use. Since this is regarded as a passenger vehicle, my deduction is limited to the depreciation cost limit of $57,581 and is further reduced because it is not entirely used for business use. The deduction available to me is $57,581 x 80% thereby allowing me to claim $46,064 in 2021.
I buy a new header for $350K (GST excl) in August 2020 for delivery in October 2020. Since this is over $150K threshold, I then revert to the accelerated depreciation concession rules. This allows me to claim 50% upfront and an additional portion for being the first year in the small business pool. The first year claim is 57.5% of the cost of the header making for a deduction in the 2021 year of $201,250. The rest is claimed in the small business pool at 30% per year on the remaining balance.
There are some reasonable concessions here if you are looking for a tax deduction in the 2020 or 2021 year of income.
Give us a call if you have any questions.
Ph: 02 6884 5542