Good News on the Enhanced Instant Asset Write-Off Front -
Temporary Full Expensing
In the May 2021 budget announcement, the generous write-off incentive has been extended by a further 12 months to assets purchased up to and including 30 June 2022.
Just like the instant asset write-off, the temporary full expensing measure allows small business owners to immediately deduct the business portion of the cost of eligible depreciating assets.
Businesses with an aggregated turnover of less than $50 million can immediately deduct the business portion of the cost of eligible new and eligible second-hand depreciating assets. The eligible assets must be first held, and first used or installed ready for use for a taxable purpose, between 7.30pm AEDT on 6 October 2020 and 30 June 2022.
There is no general limit on the cost of eligible assets to which you can apply temporary full expensing, but there may be specific cost limits on certain assets, such as passenger vehicles to which the car limit may apply.
Updated: 13/05/2021 14h33
It is not often that we get good news from the ATO. But this just in...
For small and medium-sized businesses, the existing ENHANCED INSTANT ASSET WRITE-OFF INCENTIVE has been extended for a further 6 months to 30 June 2021 (previously it was only eligible up to 31 December 2020).
It is now available for ALL assets first used or installed ready for use before 30 June 2021.
In other words, it includes both brand new assets purchased and second-hand assets purchased (previously it only applied to brand new assets).
Practically what this means is that we still have to capture the asset as a fixed asset in your general ledger, but then we immediately depreciate it to NIL. So as is standard accounting practice, the asset will remain in your fixed asset register, albeit with a NIL book value, until you sell or scrap the asset.
Assets with a fixed asset accounting cost up to $150,000 can be immediately expensed.
As is always the case there are terms and conditions:
Certain assets are excluded. More on this later.
There are passenger vehicle value limits.
Passenger Vehicles used for business
The car limit applies to the cost of some passenger vehicles or station wagons (including four-wheel drives).
It applies to vehicles designed to carry a load of less than one tonne and fewer than nine passengers. It does not apply to motorcycles or similar vehicles, or to vehicles fitted out for use by people living with a disability.
If the vehicle is not considered a passenger vehicle, the car limit does not apply.
We can only use enhanced instant asset write-off to depreciate the vehicle in your fixed asset register up to the maximum allowable ATO value of $59,136 for the 2020–21 income tax year.
For example, should you buy a vehicle for business purposes that has a fixed asset cost of $80,000, then we can immediately depreciate $59,136. The remainder of the vehicle cost can never be depreciated for tax purposes.
Please also note that there are GST input tax credit limitations that will also impact the fixed asset cost of the vehicle. Generally, if you purchase a vehicle and the price is more than the car limit, the maximum amount of GST credit you can claim is one-eleventh of the car limit amount. You cannot claim a GST credit for any luxury car tax you pay when you purchase a luxury car.
The estimated business and private usage will also impact the amount of depreciation that can be claimed.
There are a small number of excluded assets, ie, assets leased to your customers, assets allocated to a low-value asset (pool), horticultural plants, software being developed and capital works deductions (ie building improvements).
Simplified Depreciation Pool
Small businesses (with aggregated turnover under $10 million) can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies.
The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out of the regime will continue to be suspended.
Pending legislation, backdated to 1 July 2020, newly eligible businesses can immediately deduct:
certain start-up expenses – for example, professional expenses and legal and accounting advice (previously these could only be deducted as black hole expenses over 5 years).
certain prepaid expenditure where the payment covers a period of 12 months or less and ends in the next income year (previously these expenses could only be deducted over the prepayment period).
It is highly recommended that you speak to your accountant should you require any further guidance on this.
Published: 28/10/2020 14h05