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Instant Asset Write Off – Budget Outcomes

Tuesday 27, Oct 2020

 

CAFBA was very pleased with the Budget announcement that the Instant Asset Write Off has been extended to assist business during economic recovery. The existing provisions for the instant asset write-off provided for an immediate deduction for assets, including second hand assets, costing less than $150,000 to all taxpayers with turnover of less than $500m, provided:

  • Asset was acquired before 31 December 2020; and
  • Asset was first used, or installed ready for use, prior to 31 December 2020.

 

The budget extended the date to have the asset first used or installed ready for use to 30 June 2021.

 

The requirement to acquire the asset prior to 31 December 2020 still remains.

 

Under the budget measures, small and medium businesses (but only those with turnover less than $50m) will get to “fully expense” all assets, including second hand assets  acquired and installed ready for use until 30 June 2022.  Other entities only get to fully expense new assets (but medium businesses based on $500m turnover still get immediate deduction on 2nd hand assets less than $150k if they meet conditions above).

Below table to provide an easy guide to follow the changes.


Acquisition Date

Criteria

Small Business (<$10m)

Medium Business (<$50m)

Medium Business (>$50m <$500m)

Large Business

2 April 2019
to
11 March 2020

< $30k

100%
Write-off

100%
Write-off

N/A

N/A

12 March 2020 to
6 October 2020

< $150k

100%
Write-off

100%
Write-off

100%
Write-off *

N/A

> $150k New assets

57.5%
first year

50% + normal depreciation on balance

50% + normal depreciation on balance

N/A

6 October 2020 to
30 June 2022

New assets

100%
Write-off

100%
Write-off

100%
Write-off

100%
Write-off

2nd hand assets

100%
Write-off

100%
Write-off

N/A *

N/A

Pool balance

100%
Write-off

N/A

N/A

N/A


* 100% write-off continues to apply for 2nd hand assets acquired on or before 31 December 2020 and installed by 30 June 2021 for businesses with turnover <$500m.


CAFBA members however should be aware of an existing provision that does NOT allow deductions, referred to in the President’s message, which is duplicated below:

 

A client may a trading entity and an asset owning entity which is a common structure in the SME space. The operating entity earns the income and pays a management fee to the hire entity which will show as rental income or similar, with a hire agreement in place between the 2 entities.  According to the Australian Taxation Office rules excluded assets include “assets that are expected to be leased out, for more than 50% of the time on a depreciating asset lease”.

 

We understand that the intent of this rule is to stop large hire companies from taking advantage of the incentive, however, it appears that this rule may be detrimental to an SME trying to take advantage of the government incentive, which they are currently excluded from participating.

 

Members should seek advice on the ability of the entity acquiring the asset to claim a deduction under these circumstances.