$150k instant asset write-off scheduled to reduce back to $1,000 for small business entities and will no longer be available for entities with aggregated annual turnover of $10m or more, although accelerated depreciation rules apply to certain entities until 30 June 2021.
NEWSFLASH – Instant Asset Write-Off $150,000 Extended to 31 December 2020
Businesses will be able to claim accelerated depreciation on new assets for the remainder of the year under the latest extension to the $150,000 instant asset write-off program unveiled by Treasurer Josh Frydenberg on Tuesday 9 June 2020. Legislation to give effect to the extension to the instant asset write-off will soon be introduced.
Key Criteria for Instant Asset Write-Off $150,000:
- An aggregated turnover of less than $500 million
- The cost of each asset is less than the instant asset threshold – $150,000
- The asset(s) have been purchased and used or installed for use before 31st December 2020
Is my business eligible for the instant asset write-off?
There are 3 criteria that determine a business’ eligibility for the instant asset write-off scheme. These include:
- The aggregated turnover of the business and any associated businesses
- The date when you purchased the asset for your business and when it was first used or installed for use
- The total cost of the individual asset coming in under the relevant threshold
What is excluded from the instant asset write-off?
There are a number of assets that are excluded from the instant asset write-off scheme. These assets must use the general depreciation rules and cannot be included.
- Any assets that have been or are expected to be leased out for more than 50% of the time on a depreciating asset lease
- Any assets that have been allocated to low-value assets (pool) prior to using the simplified depreciation rules
- Any horticultural plants
- Any software apportioned to a software development pool
- Any capital works deductions
In addition to these exclusions, the purchase of a car is limited to the business portion of use, with a limit of $57,581 for the 2019-20 income tax year under the instant asset write-off scheme. Learn more about the car cost limit for depreciation here.
What happens if the cost of the asset is greater than the threshold?
For small businesses using the simplified depreciation method where the cost of an asset meets or exceeds the threshold, the asset must then be placed into the small business pool.
If you’re not using the simplified depreciation method and the cost of an asset meets or exceeds the threshold, you are required to use the general depreciation method.
In some cases, assets that exceed the threshold may be able to use the accelerated depreciation method. Learn more here.
How do I work out my deduction for the instant asset write-off?
When calculating the amount you can claim on relevant assets, you must subtract any private use portion. The balance here is generally the taxable purpose portion (business portion).
Despite only being able to claim the taxable purpose portion, the entire cost of the asset must still be below the relevant threshold.
Eligible businesses can claim depreciation for a number of assets provided each asset sits below the relevant threshold and doesn’t include trade-in amounts. The threshold may also be inclusive or exclusive of GST; this depends on whether you’re registered for GST.)
The company tax rate will reduce to 26% for small and medium businesses.
The 1 July change is part of a larger progressive plan to reduce the company tax rate to 25% from 1 July 2021 and applies to base rate entities – companies, corporate unit trusts, and public trading trusts – with an aggregated turnover of less than $50 million where 80% or less of the entity’s turnover for the year is classified as base rate entity passive income. Larger companies will continue to pay the 30% rate.
| 2018-19 and 2019-20 | 2020-21 | 2021-22 | |
| Base rate entities* | 27.5% | 26% | 25% |
| Other corporate tax entities | 30% | 30% | 30% |
*aggregated turnover less than $50m and no more than 80% of the company’s assessable income is base rate entity passive income.
The reduction in the company tax rate will also change the maximum franking rate that applies to dividends paid by some base rate entities. The way the rules normally work is that if the company was classified as a base rate entity and was taxed at the lower corporate tax rate in the previous year then a lower maximum franking rate will apply to dividends paid in the current year. For example, a company that was classified as a BRE in the 2019 income year will generally be subject to a maximum franking rate of 27.5% on franked dividends paid in the 2020 income year. However, the maximum franking rate will normally be 26% for dividends paid in the 2021 income year if the company was a BRE in the 2020 income year.
Other changes from July 1, 2020 include:
- Cents per km rate for work-related car expenses increase to 72 cents.
- Expected reforms to allow 66 and 67 years old’s to make voluntary superannuation contributions without satisfying the work test. This reform is not yet law.
- Age limit for making superannuation contributions to your spouse increases from 69-74. This reform is not yet law.
- For those 67 and under, reforms will enable you to use the ‘bring forward rule’ to make up to three years of non-concessional contributions. That is, you can make non-concessional contributions of up to $300,000 from the 2020-21 financial year.
