The Government’s Budget announcement of a generous temporary measure that extends the current instant asset write-off concessions was passed into law on 14 October 2020.

Existing instant asset write-off

The current law states that businesses with an aggregated turnover of less than $500 million are eligible for the immediate tax write-off for the cost of their new or second-hand depreciating assets costing less than $150,000. Note that the assets need to be first used or installed between 12 March 2020 and 31 December 2020.

The new 100% immediate write-off

Under the Government’s new measures, businesses with an aggregated turnover of less than $5 billion will be able to deduct the full cost of their new eligible assets acquired between 7:30 PM AEDT on 6 October 2020 and first installed or installed ready for use by 30 June 2022.

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

How the measure applies

To summarise, the implications of the new measures and existing instant asset write- off measures are as follows:

  • Businesses with an aggregated annual turnover of less than $5 billion will be entitled to an immediate tax deduction for the full costs of their new eligible assets that were acquired from 7:30 PM AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2022.
  • Businesses with an aggregated turnover of less than $50 million will be entitled to an immediate tax deduction for the full cost of their new or second-hand eligible depreciable assets that were acquired from 7:30 PM AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2022.
  • Businesses with an aggregated turnover of between $50 and $500 million will be entitled to an immediate tax deduction for the costs of their second-hand eligible assets costing less than $150,000 that are purchased before 31 December 2020 installed or installed ready for use by 30 June 2021.
  • Small businesses with an aggregated turnover of less than $10 million can deduct the balance of the small business pool at the end of the financial year under the new measure.

Key takeaways

  • The new measures for businesses with an aggregated annual turnover of less than $5 billion are only applicable to new assets, second-hand assets do not fall within this category.
  • Eligible assets exclude assets that are buildings (subject to the Division 43 capital works deduction, assets allocated to low-value pools and software development pools, and assets used or installed outside of Australia.
  • Eligible assets for the Government’s new measures must be acquired post 7:30 PM AEDT 6 October 2020 and first installed and used by 30 June 2022.
  • The aggregated turnover is a key measure that needs to be correctly assessed. The aggregated turnover includes the turnover of the entity itself and all its related parties, both domestic and international.
  • The immediate deduction can give rise to a tax loss.
  • There is no choice not to claim the immediate deduction.
  • Additional tax benefits can arise to companies that are able to utilise the loss carry-back measure also introduced in the budget.