Tax Flash – Instant Asset Write-Off

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As you may be aware, the original instant asset write-off threshold was due to revert back from $20,000 to $1,000 effective 1 July 2019. However, the Government announced on 29 January 2019 that it would extend the concession for another year and increase the threshold from $20,000 to $25,000. Later, the Government announced a further increase of the threshold from $25,000 to $30,000 effective from 7.30 pm AEDT on 2 April 2019. The increased threshold would also be expanded to medium-sized businesses (e.g. businesses with an aggregated turnover of less than $50 million). The Parliament has since enacted the legislation.

Therefore, the relevant thresholds for the cost of depreciating assets and the aggregated turnover under the new measures can be summarised in the table below:

Period Assets Cost Threshold Aggregated Turnover Threshold
before 29 January 2019 $20,000 $10 million
from 29 January 2019 until before 7.30pm AEDT on 2 April 2019 $25,000 $10 million
from 7.30pm AEDT on 2 April 2019 to 30 June 2020 $30,000 $50 million
from 1 July 2020 $1,000 $10 million

For those preparing the 2019 income tax returns for their clients, there are three potential thresholds applying in one income year.

To claim the immediate deductions, the assets must be first used, or installed ready for use, for a taxable purpose during the relevant period. For example, if the assets are still in the process of being delivered from overseas by 30 June, no deduction can be claimed until the assets are delivered (which is likely to be in the following income year).

If the client is registered for GST, the threshold is the GST-exclusive purchase price. If the client is not registered for GST, the threshold is the GST-inclusive purchase price. Further, the entire cost of the asset must be less than the threshold, irrespective of any trade-in amount.

Medium-sized Businesses

As mentioned above, the concession has now been extended to medium-sized businesses, which is defined as an entity that:

  • carries on a business in that income year; and
  • satisfies the following aggregated turnover test:
    • the aggregated turnover of the entity for the current income year is $10 million or more (that is, it exceeds the threshold to be an SBE) but less than $50 million;
    • the aggregated turnover of the entity in the prior income year was $10 million or more but less than $50 million; or
    • at the beginning of the current income year, the aggregated turnover of the entity for the current income year is likely to be $10 million or more but less than $50 million.

Unlike SBEs that can choose to elect into the Simplified Depreciation Rules to claim the immediate deduction, the rules automatically apply for working out the decline in value of a depreciating asset. However, the rules do not override other specific rules for deductions in Division 40, such as deductions for horticultural plants under section 40-545.

MKT Note

While this concession is a welcome initiative from the Government, the threshold could have been made permanent. However, the Government in the Explanatory Memorandum suggests that a temporary, rather than permanent, threshold induces a behavioural response, which encourages some small businesses to bring forward capital investment before the threshold reverts to $1,000. Given this view, we are unlikely to see the threshold being made permanent.

If you have any queries on claiming the instant asset write-off for your clients, please contact Peter Hong.

MKT’s pre-record webinar case study is now available for purchase, please click here for Tax Concessions for Small Business Entities including Base Rate Entities.

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