Helping businesses recover

Tax depreciation incentives to help businesses recover

In 2020, the Government introduced tax depreciation incentives to help businesses recover from the impact of the COVID-19 pandemic.

To help eligible business entities understand which tax depreciation incentives are available, the ATO published a useful snapshot to explain the depreciation incentives that may apply and when businesses could consider using them.

What incentives are available?

The tax depreciation incentives that are available to eligible businesses are:

  • Temporary full expensing;
  • Instant asset write-off; and
  • Accelerated depreciation (“Backing business investment”).

Key points to note:

  • The instant asset write-off and accelerated depreciation are available only where the asset is first used, or installed ready for use, before 1 July 2021 – temporary full expensing is available until 30 June 2023 (it was extended by 12 months in the Budget);
  • Temporary full expensing is available to businesses with an aggregated turnover of less than $5 billion a year – the instant asset write-off and accelerated depreciation are not available to businesses that have an aggregated turnover of $500 million or more a year;
  • Temporary full expensing and accelerated depreciation apply only to new assets, but the instant asset write-off can be used for second-hand assets as well as new ones;
  • Under the instant asset write-off, the asset must cost less than $150,000 – there is no cost restriction under temporary full expensing or accelerated depreciation;
  • Businesses with aggregated turnover of at least $10 million a year can opt out of temporary full expensing and accelerated depreciation (but not the instant asset write-off) on an asset-by-asset basis.

So, if you are contemplating buying a second-hand depreciating asset that costs less than $150,000 and you want an immediate deduction for the full cost (i.e. under the instant asset write off), you need to buy the asset (and first use it or install it ready for use) before 1 July 2021. If you wait until after 30 June 2021, you will have to depreciate the asset under the uniform capital allowance system or the simplified depreciation rules (if you are using them).

You can download the ATO snapshot of the depreciation incentives here.

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Thompsons Australia Newsletters and articles are distributed by professional tax practitioners to provide information of general interest to our clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.