• Federal Budget 2020-2021

Temporary full expensing of capital assets

The Government has announced a temporary measure to allow businesses to claim an immediate deduction for the full cost of eligible capital assets.

Under the current law, businesses with annual aggregated turnover of less than $500 million are entitled to an immediate tax deduction for the cost of a depreciating asset, whether new or second hand, with a cost of less than $150,000 which is first used or installed ready for use between 12 March 2020 and 31 December 2020.

Under the new measure, businesses with aggregated annual turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets acquired from 7:30pm AEDT on 6 October 2020 and first used or installed by 30 June 2022.

The announcement also extends the current instant asset write-off by giving businesses an extra six months, until 30 June 2021, to first use and install those assets.

The announcement also factors in small businesses using the simplified depreciation pool.

The implications of the new measure and the existing instant asset write-off measure are as follows:

  • Businesses with annual aggregated turnover of less than $5 billion will be entitled to an immediate tax deduction for the full cost of new eligible capital assets and improvements to existing eligible assets acquired from 7:30pm AEDT on 6 October 2020 and first used or installed by 30 June 2022
  • Businesses with aggregated turnover of less than $50 million will also be entitled to an immediate tax deduction for the full cost of second-hand assets acquired from 7:30pm AEDT on 6 October 2020 and first used or installed by 30 June 2022
  • Businesses with aggregated annual turnover between $50 million and $500 million can claim an immediate deduction for the full cost of eligible second-hand assets costing less than $150,000 if they are purchased by 31 December 2020 and installed ready for use by 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 under the new measure.

Broadly, the annual aggregated turnover of an entity includes the income earned in carrying on that entity’s business plus the annual turnover of entities connected or affiliated with that entity which may be based in Australia or overseas.

BDO Comment

This measure generously extends the current instant asset write-off concessions which was introduced as part of the Government’s measures to support businesses to withstand and recover from the economic impacts of COVID-19. However, the measure also introduces added complexities because of the annual aggregated turnover definition. This is particularly the case for Australian large businesses that are foreign owned or do not have visibility on the turnover of their significant owners in order to assess eligibility for the write-off. Accordingly, it is critical that businesses identify any other entities that they are connected with or affiliated with.

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