Immediate Write-Off For Individual Small Business Assets & Temporary Full Expensing

The accelerated depreciation and instant asset write-off concession for small businesses has been extended. The eligibility criteria and threshold for the instant asset write-off have changed over time. Any business with an aggregated turnover of up to $500 million will be able to claim a tax deduction for each asset purchased and first used or installed ready for use before June 30, 2021. Qualifying assets can cost up to the $150,000 threshold.

In addition, until 30^th June 2022, Temporary Full Expensing means the instant asset write-off thresholds don’t apply as this allows an immediate deduction for:-

• the business portion of the cost of new eligible depreciating assets for businesses with an aggregated turnover under $5 billion
• the business portion of the cost of eligible second-hand goods for businesses with an aggregated turnover under $50 million
• the balance of a small business pool at the end of each income year in this period for businesses with an aggregated turnover under $10 million.
  
  In other words, for assets you purchased and first used (or have installed ready for use) for a taxable purpose from 7.30pm (AEDT) on 6 October 2020 to 30 June 2022, the instant asset write-off threshold does not apply. You can immediately deduct the business portion of the asset's cost under temporary full expensing.

Below is a table of the instant asset write off thresholds for small businesses applying the simplified depreciation rules:

Below is a table of the instant asset write-off thresholds for businesses with an aggregated turnover of between $10 million or more but less than $500 million:-

On face value the instant asset write off is a very appealing tax concession, however, there are a number of conditions you need to satisfy. Firstly, the asset must be used in the business for income-producing purposes. The Tax Office have stated they will monitor usage to detect ‘rorts’ so once you lodge your tax return you might get a ‘please explain’ letter from the ATO asking for more details.

Here are some key points to consider:

• For the instant asset write off the asset can be new or second hand.
• To be eligible, the asset must be purchased by a business turning over less than $50m or $500 million after 12^th March 2020 (see above table).
• The amount must be under $150,000 (depending on date of purchase – see table above as it could be $30K or $25K or $20K) exclusive of GST (i.e. $165,000, $33K, $27.5K or $22K including GST)
• If you borrow to purchase the asset, the asset is still eligible.
• The asset must be installed and ready to use by the deadline (purchasing a car to be delivered in July 2021 won’t qualify until the car is actually delivered).
• To claim the write off on a motor vehicle you will need to have a valid log book and claim only that percentage of the cost as an immediate write off.
• If you purchase a car for your business, the instant asset write-off is limited to the business portion of the car limit of $59,136 for the 2020/21 income tax year.
• Some taxpayers may try to reduce the cost of an asset to under $30k (for purchases prior to 12^th March 2020) by using a trade-in when purchasing the asset (for example a car). However, the monetary value of the trade-in will form part of the asset cost and not reduce the cost of the asset.
• Any attempt to manipulate invoices etc. will attract the ATO's use of the anti-avoidance rules, thereby eliminating the write off.
• If your business has a small profit or even a loss, the write off will be of little or no benefit in the current year (losses are not refundable but can be carried forward to the next year).
• Building structural improvements are not eligible for the instant write off.
• If your pool balance at the end of the year is less than $30,000 before applying any other depreciation deduction, the entire pool balance can be written off ($150,000 if purchased post 12^th March 2020 and before 31^st December 2020).
• If your business is not a ‘Small Business Entity’ you will need to depreciate all assets purchased over $1,000. Any assets purchased for $1,000 or less can be written off immediately.
• Accelerated Depreciation Deductions
  Newly acquired depreciating assets valued at more than $30,000 (or $150,000 post 12^th March 2020) and not applied to the instant asset write off deduction can be added to the general business pool. As part of the backing business incentive, an accelerated depreciation deduction of 57.5 percent for the business portion of the new depreciating asset applies for the cost of an asset on installation from 12^th March 2020 to 30^th June 2021 and existing depreciation rules apply (15 per cent for the first year and 30 per cent for subsequent years) to the balance of the asset’s cost and for subsequent years. There is no limit to the cost of a qualifying depreciating asset eligible for this concession, but the asset must be new and not second hand.

Other 2021 Year End Tax Planning Opportunities

• Back to the overview of the 2021 Year End Tax Planning Guide
• Round Up of Other Year End Tax Issues
• Key Tax Minimisation Strategies
• Other Tax Effective Strategies
• Superannuation Tax Planning Opportunities
• Download the full PDF

Disclaimer: This newsletter contains general information only and no responsibility can be accepted for errors, omissions or possible misleading statements. It is not designed to be a substitute for professional advice and does not take into account your individual circumstances. Therefore, no responsibility can be accepted for any action taken as a result of any information contained in this newsletter.