A large part of the COVID stimulus packages announced by the Government last year was intended to encourage businesses to invest in capital assets. They did this by announcing the “temporary full expensing of depreciating assets” provisions on 6 October 2020 for businesses with aggregated turnover of less than $5 billion. Prior to this, the instant asset write-off threshold had been increased to $150,000 for businesses with aggregated turnover of less than $50 million.
These changes have resulted in many businesses investing in assets throughout this financial year with the view to claiming a full tax deduction for the asset. Alternatively, businesses may still be considering purchasing an asset prior to 30 June 2021 in order to claim the tax deduction. There are some tricks and opportunities to these depreciable asset write off provisions that you should be aware of.
These include (but are not limited to):
- To be entitled to use the temporary full expensing, the asset must be first held and used, or installed ready for use, between 6 October 2020 and 30 June 2021
- If you have ordered an asset but it hasn’t been received by 30 June 2021, the deduction will not be available – although it may well be deductible in the 2022 year
- If your business’ aggregated turnover is less than $50 million, assets purchased between 1 July 2020 and 5 October 2020 which cost $150,000 or less will be eligible to be written off in full using the instant asset write off rules
- You may be entitled to write off second hand depreciating assets (where aggregated turnover less than $50 million)
- The deduction for a new car is limited to the depreciation cost limit for cars which is $59,136
- A vehicle which is designed to carry more than one ton (has a payload capacity of more than 1,000 kg) is not considered to be a car and is not subject to the depreciation cost limit
- Capital works, including structural improvements are NOT included
- The backing business investment rules (essentially an accelerated depreciation regime) may be relevant for your business for assets purchased between 1 July 2020 and 5 October 2020 whose cost was greater than $150,000 (assets not subject to the immediate write off)
The number of changes to these provisions since 2015 means there are a number of thresholds, asset values and timeframes to be aware of to ensure deductibility for your investments.
You may have noted in the most recent Federal budget that the temporary full expensing measures have been extended from 30 June 2022 to 30 June 2023.
If you would like to discuss the above in more detail to determine your business’ eligibility, please contact your Holman Hodge adviser.