Tax breaks for the 2020 tax return

Instant asset write-off

Businesses can claim an immediate deduction (the instant asset write-off) and reduce the tax payable when buying business assets such as machinery, cars, delivery vehicles, office furniture and display cabinets. The instant asset write-off is also available for second-hand assets (but not where you dispose of an existing asset and then buy it back).

Cost caps apply depending on when the asset is first used or installed ready for use – see below.

For businesses claiming GST, the tax write-off cost excludes GST.

For businesses not claiming GST, the tax write-off cost includes GST.

 

News alert: Instant Asset Write-off extended

Treasurer Josh Frydenberg announced today that the Government will extend the $150,000 instant asset write-off (IAWO) by six months until 31 December 2020. Under the measure, the asset must be both acquired and installed ready for use by 31 December 2020, instead of 30 June 2020.

The IAWO allows businesses that have an aggregated turnover of less than $500 million (grouping rules apply) to claim a deduction for a depreciable asset that costs less than $150,000 (after claiming any GST credits).

 

 

Small businesses (total turnover less than $10 million)

The cost caps for a small business are:

Date asset first used

or installed ready for use                 

Cap (asset must cost less than)
1 July 2019 – 11 March 2020 $30,000
12 March – 30 June 2020 $150,000

 

 

Other businesses

If you are a medium business with total turnover of $10 million or more but less than $50 million, the instant asset write-off is available for assets costing less than $30,000 if first used, or installed ready for use, for a taxable purpose before 12 March 2020.

If an asset is first used, or installed ready for use, for a taxable purpose between 12 March and 30 June 2020, the instant asset-write off threshold increases from $30,000 to $150,000. In other words, the instant asset write-off is available where the asset costs less than $150,000.

If you are a business with total turnover of $50 million or more but less than $500 million, the instant asset write-off is available for assets costing less than $150,000 where the asset is first used, or installed ready for use, for a taxable purpose between 12 March and 30 June 2020.

Note! If the asset is a car, the instant asset write-off is limited to the business portion of $57,581 (the car depreciation limit – this will increase to $59,136 from 1 July 2020).

Tip! Always talk with your tax adviser before buying any business assets. In particular, the timing of when you first used an asset, of first install it ready for use, is important.

 

Example

Jane owns a café which is a small business. In January 2020 she bought a new fridge freezer for $7,500 and a new espresso machine for $3,400. They are installed ready for use on 24 January.

Jane can take advantage of the instant asset write off for both items because each one costs less than $30,000.

In April 2020 Jane buys a new van for $43,650, which she immediately starts to use in the business. She can take advantage of the instant asset write off for the van because it cost less than $150,000. If she had bought and started using the van before 12 March 2020, the instant asset write-off would not have been available.

Note!

  • You can use the instant asset write-off multiple times. However, each asset must cost less than the relevant cap.
  • If you are thinking of buying assets for your business, you should do so before 1 July this year when the instant asset write-off threshold is due to revert to $1,000. Although no one will be surprised if the Government extends the higher threshold (e.g. $30,000) beyond 1 July, you cannot rely on that happening.

 

Accelerated depreciation

An accelerated rate of depreciation is available for new business assets first held on or after 12 March 2020 and first used or installed ready for use for a taxable purpose on or after 12 March 2020 and before 1 July 2021. The asset must be used principally in a business in Australia or located in Australia.

The accelerated rate of depreciation is not available:

  • for assets written off immediately under the instant asset write-off rules;
  • for second-hand assets (with certain exceptions, e.g. trading stock);
  • for assets used in a primary production business (e.g. fencing, fodder storage assets or horticultural plants); or
  • if you were committed before 12 March to acquiring or constructing the asset – you cannot restructure an existing contract to try to get around this rule.

You cannot split an asset or merge assets to try to qualify for the accelerated depreciation.

The rules for working out the accelerated depreciation vary depending on whether or not you use the simplified depreciation rules.

In all cases, you cannot deduct more than what you pay for the asset.

 

ATO – Instant asset write off 

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Thompsons Australia Newsletters and articles are distributed by professional tax practitioners to provide information of general interest to our clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

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