There’s never been a better time to upgrade

Back in March the Australian Government
launched a range of unprecedented
stimulus schemes to incentivise
continued investment in
capital assets.

This is an extraordinary
level of support
which makes it attractive to
purchase equipment and
upgrade the fleet. 

Both of these measures
are crucial to
kickstart investment,
create cashflow and
secure jobs.

How does it work?

Instant Asset Write-Off (IAWO)

Provides 100%
depreciation

New or second hand
capital assets

On assets 
up to $150,000

Per asset
Write-off
multiple assets

Delivered by 
31 December 2020

Backing Business Investment (BBI)
accelerated depreciation

bonus 50% depreciation
to be written off immediately

For capital purchases
delivered by
30 June 2021

Per asset
Write-off
multiple assets

There is
no upper threshold

Up to 60-65%
of the assets
can be 
written off immediately

Many more businesses around Australia will have access to the support measures that provide them with the cash flow to invest in assets they require to succeed now and into the future.

Nathan Murray,
Managing Director of Morris Finance

Instant Asset Write-off

The Australian Government has temporarily increased the
instant asset write-off threshold (IAWO) from $30,000 to $150,000.

The threshold applies on a per asset basis, so eligible businesses can immediately write-off multiple assets.

It also applies to both new and used assets, so long as the assets have been purchased in the current financial year.

Eligibility

The IAWO is applicable:

  • until the 31 December 2020
  • for assets first used or installed ready for use in this timeframe.
  • The annual turnover threshold
  • $500 million total (aggregated) ordinary income of your business and that of any associated businesses.

The IAWO has now been extended and is expected to revert to $1,000 for small businesses (turnover less than $10 million) as of 1 January 2021.  

How to apply

To claim the IAWO, you need to make the purchase and use the asset for your business in the same year that you claim the deduction.

Exclusions and limits

There are a small number of assets that are excluded.

Better Business Investment Scheme

Businesses with an aggregated turnover of less then $500 million
for the 2019-20 and 2020-21 income years are eligible to
deduct the cost of depreciating assets at an accelerated rate.

Accelerated depreciation

The amount the entity can deduct in the income year the asset is first used or installed ready for use is:

  • 50% of the cost (or adjustable value where applicable) of the depreciating asset
  • plus the amount of the usual depreciation deduction that would otherwise apply but calculated as if the cost or adjustable value of the asset were reduced by 50%.
  • You can claim the deduction when lodging your tax return for the income year.
  • The usual depreciating asset arrangements apply in the subsequent income years that the asset is held.

Eligibility criteria

To be eligible the asset must be:

  • new and not previously held by another entity (other than as trading stock)
  • first used or first installed ready for use for a taxable purpose on or after 12 March 2020 until 30 June 2021
  • an asset which no entity has already applied the instant asset write-off rules or depreciation deductions.

Eligible assets do not include:

  • second-hand depreciating assets
  • assets you were committed to acquiring before 12 March 2020.

Check out these examples

These examples of the Better Business Investment accelerated
depreciation scheme explore a couple of common scenarios:

Example 1

Small business benefits

Joan and Bruce own a company, NC Transport Solutions Pty Ltd, through which they operate a haulage business on the North Coast of New South Wales.

NC Transport Solutions Pty Ltd has an aggregated annual turnover of $8 million for the 2019–20 income year. On 1 May 2020, Joan and Bruce purchase a new truck for $260,000, exclusive of GST, for use in their business.

Under past tax arrangements, NC Transport Solutions Pty Ltd would depreciate the truck using their general small business pool.

This means that NC Transport Solutions Pty Ltd would deduct 15% of the asset’s value when they added it to the pool, leading to a tax deduction of $39,000 for the 2019–20 income year (assuming there are no other assets in the pool).

Under the new accelerated depreciation, NC Transport Solutions Pty Ltd will instead claim a deduction of 57.5% when they add it the pool, leading to a deduction of $149,500 for the 2019–20 income year.

Example 2

Middle-sized business benefits

J Construction Solutions Pty Ltd has an aggregated annual turnover of $200 million for the 2020–21 income year.

On 1 July 2020, J Construction Solutions Pty Ltd installs a $1 million truck mounted concrete pump for use in the business.

Under past tax arrangements, in the first year J Construction Solutions Pty Ltd could claim 30% depreciation when using the diminishing value method (based on the asset’s effective life of six and two thirds years).

Under the new accelerated depreciation, J Construction Solutions Pty Ltd can claim a depreciation deduction of $650,000 in the 2020–21 income year.

This consists of 50% of the concrete pump’s value under the new accelerated depreciation ($500,000) plus 30% of the remaining $500,000 under existing depreciation rules ($150,000).

What to do now?

Read these articles on the HVIA website