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Adding safety equipment deductible under temporary full expensing

The Instant Asset Write-off (IAWO) is now available for adding safety enhancements to existing heavy vehicles.

Temporary full expensing can apply to eligible acquisitions of depreciating assets, as well as the cost of eligible safety improvements to existing depreciating assets including a mid-life upgrade of trailers.

Assistant Minister for Road Safety and Freight Transport Scott Buchholz presented the Safety Innovation Award at HVIA’s National Awards recently.

“As a nation and as a Government we are truly appreciative of the work the heavy vehicle sector does in the safety space,” Mr Buchholz told guests and viewers online.

“A recent Productivity Commission report outlined that investing in safety enhancements on heavy road transport between the years 2009 and 2019, contributed towards better road safety outcomes.

“So, if you upgrade with safety enhancements on existing trailers, that will also be covered. I made sure through Treasury that we have those provisions.”

HVIA Chief Executive Todd Hacking threw his support behind the initiative.

“The Government has been working closely with us, since the beginning of the pandemic, to develop effective stimulus initiatives for our industry,” Mr Hacking said.

“To date the Instant Asset Write-off program has enabled fleet owners to renew their equipment rather than putting those sorts of decisions on hold.

“This new provision is a good compromise option for customers that are unable to do that.

“We know that the uptake of new safety features across the fleet will save lives. We commend this proactive initiative to incentivise the adoption of proven safety solutions.”

There are some conditions that must be met. Among other things, to be eligible for accelerated deductions under temporary full expensing, an entity:

  • must meet the less than $5b aggregated turnover test, and
  • must meet certain timing requirements in relation to the acquisition or improvement of the depreciating asset.

Very broadly, these timing requirements are:

  • where an eligible entity acquires a depreciating asset – the entity must start to hold and start to use the asset (or have it installed ready for use) for a taxable purpose between 7:30pm on 6 October 2020 (2020 Budget time) and 30 June 2022;
  • where an eligible entity improves a depreciating asset that it already holds – the improvement costs must be paid or incurred within that same timeframe.

Whether the upgrades are an acquisition of an asset, or an improvement to an asset, they should be considered in the facts and circumstances of the taxpayer.

Exclusions include, but are not limited to, commitments already entered into before 2020 Budget time and second-hand assets. However, these exclusions do not apply to improvements costs, or to entities with aggregated turnover of less than $50m.

The ATO has produced a series of examples to illustrate some scenarios explaining the application of the provisions:

Example 1: A trailer was acquired by an entity prior to the 2020 budget time and the entity incurs improvement costs on the trailer (for example, fitting ABS) on 20 October 2020.

The business’ aggregated turnover is less than $50m, or

The business’ aggregated turnover is $50m or more and less than $5b

In both scenarios, the business is eligible to deduct the full cost of the improvements in their 2020-21 income tax return, assuming the satisfaction of all other relevant conditions. The trailer itself was held before the 2020 Budget time, so it is ineligible for temporary full expensing. However, it may be eligible for the enhanced Instant Asset Write Off (IAWO) if other conditions are met. The IAWO will continue to apply for businesses with an aggregated turnover of less than $500m, provided each asset is eligible for IAWO and costs less than the applicable dollar threshold. The asset must be first used or installed ready for use on or before 30 June 2021.

Example 2: A trailer was acquired by an entity on 15 October 2020 and the entity incurs improvement costs on the trailer on 20 October 2020.

The business’ aggregated turnover is less than $50m

The business’ aggregated turnover is $50m or more and less than $5b

In both scenarios, the business is eligible to deduct the full costs of both the acquisition of the trailer and the improvement costs under the temporary full expensing, assuming the satisfaction of all other relevant conditions. 

Example 3: A second-hand trailer was purchased by an entity on 15 October 2020. The entity incurs improvement costs on the trailer on 20 October 2020.

If business’ aggregated turnover is less than $50m

– both the trailer and the improvement costs are eligible for the temporary full expensing, assuming the satisfaction of all other relevant conditions.

If the business’ aggregated turnover is $50m or more and less than $5b

– the second-hand trailer is not eligible for the temporary full expensing. However, it may be eligible for IAWO if other conditions are met.

– the improvement costs are eligible for temporary full expensing, assuming the satisfaction of all other relevant conditions.

Example 4: A business has an aggregated turnover of $50 million or more and less than $5 billion. They signed a contract on 1 September 2020 to hold a trailer. The trailer was delivered on 10 October 2020.

They incurred improvement costs on 20 October 2020, unrelated to the initial acquisition.

The trailer is not eligible for temporary full expensing as the business entered into a contract to hold the trailer before 2020 budget time. However, it may be eligible for IAWO if other conditions are met.

The improvement costs can be deducted in full and under the temporary full expensing, assuming the satisfaction of all other relevant conditions.

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