Turbocharged instant asset write-off scheme unveiled
Tim Russell | October 16, 2020
There was one big-ticket initiative in the federal budget that really caught our eye, and that was the turbocharged version of the instant asset write-off scheme. Today we’ll look at how it could improve your business’s cash flow moving forward.
Did you catch the announcement that businesses, both big and small, can now immediately write off any eligible depreciable asset, at any cost, up until 30 June 2022?
Well, that’s any business with a turnover of up to $5 billion (and I don’t know about you, but I don’t rub shoulders with many businesses that size).
Treasurer Josh Frydenberg says the initiative will unlock investment opportunities for businesses by freeing up their cash flow.
“A trucking company will be able to upgrade its fleet, a farmer will be able to purchase a new harvester and a good manufacturing business will be able to expand its production line,” Mr Frydenberg says.
Let’s look at the scheme in a little more detail
The government is calling the new initiative “temporary full expensing”.
But to put it more simply, it looks like an expanded version of the popular instant asset write-off scheme, which was previously only available for small and medium-sized businesses (SMEs) and for assets up to $150,000.
Now, however, any business with a turnover of up to $5 billion can immediately deduct the full cost of any depreciable asset purchased from 6 October 2020 and first used or installed by 30 June 2022.
The cost of improvements made during this period to existing eligible depreciable assets can also be fully deducted.
There are a few other key details you should be aware of, however, especially when it comes to the purchasing of second-hand assets, including:
– Full expensing also applies to second-hand assets for SMEs (with an aggregated annual turnover of less than $50 million).
– Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the existing instant asset write-off scheme.
– SMEs that acquire eligible new or second-hand assets under the $150,000 instant asset write-off by 31 December 2020 will also have an extra six months, until 30 June 2021, to first use or install those assets.
To help explain things further, below is a brief case study provided by the ATO.
Case study: Grace’s Grains
Grace owns an agricultural company, Grace’s Grains Pty Ltd, which has an aggregated annual turnover of $20 million for the 2021-22 income year.
Grace’s Grains Pty Ltd purchases a combine harvester for $600,000, exclusive of GST, on 1 July 2021.
Without temporary full expensing, Grace’s Grains Pty Ltd would claim a total tax deduction of around $180,000 for 2021–22, with the remainder of the cost being depreciated over future years.
Under temporary full expensing, however, Grace’s Grains Pty Ltd will instead claim a deduction of $600,000 for the full cost of the combine harvester in 2021–22, approximately $420,000 more than before.
At the 2021–22 tax rate for small and medium companies of 25%, Grace’s Grains Pty Ltd will pay around $105,000 less tax in 2021–22.
This will improve the company’s cash flow and help Grace reinvest and grow her business.
Your next step
Being able to write-off assets purchased is all well and good, but if you don’t have access to the funds to purchase them, then the scheme won’t be of much use to your business.
So if you’d like help obtaining finance to make the most of temporary full expensing for your business, get in touch with us today.
We can present you with financing options for the scheme that are well suited to your business’s needs now, and into the future.
Did you catch the announcement that businesses, both big and small, can now immediately write off any eligible depreciable asset, at any cost, up until 30 June 2022?
Well, that’s any business with a turnover of up to $5 billion (and I don’t know about you, but I don’t rub shoulders with many businesses that size).
Treasurer Josh Frydenberg says the initiative will unlock investment opportunities for businesses by freeing up their cash flow.
“A trucking company will be able to upgrade its fleet, a farmer will be able to purchase a new harvester and a good manufacturing business will be able to expand its production line,” Mr Frydenberg says.
Let’s look at the scheme in a little more detail
The government is calling the new initiative “temporary full expensing”.
But to put it more simply, it looks like an expanded version of the popular instant asset write-off scheme, which was previously only available for small and medium-sized businesses (SMEs) and for assets up to $150,000.
Now, however, any business with a turnover of up to $5 billion can immediately deduct the full cost of any depreciable asset purchased from 6 October 2020 and first used or installed by 30 June 2022.
The cost of improvements made during this period to existing eligible depreciable assets can also be fully deducted.
There are a few other key details you should be aware of, however, especially when it comes to the purchasing of second-hand assets, including:
– Full expensing also applies to second-hand assets for SMEs (with an aggregated annual turnover of less than $50 million).
– Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the existing instant asset write-off scheme.
– SMEs that acquire eligible new or second-hand assets under the $150,000 instant asset write-off by 31 December 2020 will also have an extra six months, until 30 June 2021, to first use or install those assets.
To help explain things further, below is a brief case study provided by the ATO.
Case study: Grace’s Grains
Grace owns an agricultural company, Grace’s Grains Pty Ltd, which has an aggregated annual turnover of $20 million for the 2021-22 income year.
Grace’s Grains Pty Ltd purchases a combine harvester for $600,000, exclusive of GST, on 1 July 2021.
Without temporary full expensing, Grace’s Grains Pty Ltd would claim a total tax deduction of around $180,000 for 2021–22, with the remainder of the cost being depreciated over future years.
Under temporary full expensing, however, Grace’s Grains Pty Ltd will instead claim a deduction of $600,000 for the full cost of the combine harvester in 2021–22, approximately $420,000 more than before.
At the 2021–22 tax rate for small and medium companies of 25%, Grace’s Grains Pty Ltd will pay around $105,000 less tax in 2021–22.
This will improve the company’s cash flow and help Grace reinvest and grow her business.
Your next step
Being able to write-off assets purchased is all well and good, but if you don’t have access to the funds to purchase them, then the scheme won’t be of much use to your business.
So if you’d like help obtaining finance to make the most of temporary full expensing for your business, get in touch with us today.
We can present you with financing options for the scheme that are well suited to your business’s needs now, and into the future.
Kind regards,
Tim Russell
