On 6 October 2020, as part of the 2020–21 Budget, the government announced that it will target support to businesses and encourage new investment, in part through a temporary full expensing incentive.
This measure is now law.
Eligible businesses with an aggregated turnover of less than $5 billion can deduct the full cost of new eligible depreciating assets that are first held, and first used or installed ready for use for a taxable purpose, between 7:30pm AEDT on 6 October 2020 (the 2020 Budget time) and 30 June 2022. For small and medium sized businesses (with aggregated turnover of less than $50 million), full expensing also applies to eligible second-hand assets.
Businesses can also deduct the full cost of improvements made during this period to depreciating assets, whether those assets were acquired before or after the 2020 Budget time.
The measure also extends the time by which assets that qualify for the existing enhanced instant asset write-off incentive that applies to small and medium sized businesses must be first used or installed ready for use for a taxable purpose by 6 months, to 30 June 2021.
Small businesses (with aggregated turnover of less than $10 million) can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out of the regime continue to be suspended.
How can you benefit?
- The IAWO threshold provides cash flow benefits for businesses that will be able to immediately deduct purchases of eligible assets.
- Eligible businesses can immediately write-off multiple assets (vehicles).
How does it work?*
Example Jack Quick & Beanstalk Carpentry
Jack Quick owns a company, through which he operates a carpentry business, Beanstalk Carpentry. The company has an aggregated annual turnover of $2.5 million for 2020-21.
On 31st March 2020 Jack purchases a New Ute for $45,000 exclusive of GST, and a second hand van for $35,000 exclusive of GST, for use in his business.
Under the tax arrangements in force prior to 12th March 2020, the company is not able to immediately deduct assets costing more than $30,000 and instead would depreciate the vehicles using the diminishing value method.
Under the new arrangements, the company would instead claim an immediate deduction of a total of $80,000 for the purchase of the Ute and the Van.
At the company tax rate of 27.5% for small businesses, Jack / his business will pay $22,000 less tax in 2020-21.
What I need to do?
Contact us TODAY to discuss your specific needs & how you can TAKE FULL ADVANTAGE of this Tax benefit.