|Date||New assets acquired from 12 March 2020 and first used or installed ready for use for a taxable purpose by 30 June 2021|
|Applies to||Businesses with aggregated turnover less than $500m|
Businesses with a turnover of less than $500 million can access accelerated depreciation deductions for assets that don’t qualify for an immediate deduction.
This incentive is only available in relation to:
- New depreciable assets
- Acquired on or after 12 March 2020 that are first used or installed ready for use for a taxable purpose by 30 June 2021.
It does not apply to second-hand assets or buildings and other capital works expenditure. The rules also won’t apply if the business entered into a contract to acquire the asset before 12 March 2020.
How is the support calculated?
Businesses will be able to deduct 50% of the cost of a new asset in the year of purchase. They can then also claim a further deduction in that year by applying the normal depreciation rules to the balance of the cost of the asset.
Accelerated depreciation deductions will apply from 12 March 2020 until 30 June 2021. This will bring forward deductions that would otherwise be claimed in later years.
For example, let’s assume that a business purchases a new truck for $250,000 (exclusive of GST) in July 2020. In the 2020-21 tax return the business would claim an upfront deduction of $125,000. The business would also claim a further deduction for the depreciation on the balance of the cost. If the business is a small business entity and using the simplified depreciation rules, this would mean an additional deduction of $18,750 (i.e., 15% x $125,000). The total deduction in the 2020-21 tax return would be $143,750. Without the introduction of accelerated depreciation the business would have claimed a deduction of $37,500 (i.e., 15% x $250,000).
How is the support provided?
The accelerated depreciation rules provide a tax deduction, which reduces taxable income and the tax liability of the business. It is triggered when you lodge the business’s 2019-20 or 2020-21 tax return. The initial deduction is claimed in the tax return for the year in which the asset is first used or installed ready for use for a taxable purpose.
J Construction Solutions Pty Ltd has an aggregated annual turnover of $200 million for the 2020-21 income year.
On 1 July 2020, J Construction Solutions Pty Ltd installs a $1 million truck mounted concrete pump for use in the business. Under the new rules, J Construction Solutions Pty Ltd can claim a depreciation deduction of $650,000 in the 2020-21 income year. This consists of 50% of the concrete pump’s value ($500,000) plus 30% of the remaining $500,000 under existing depreciation rules ($150,000). This is $350,000 more than under the previous rules.
At the 30% company tax rate, this deduction will reduce the tax liability of J Construction Solutions Pty Ltd by $195,000 for the 2020-21 income year, assuming it is in a tax payable position.
If the business has paid PAYG instalments and these exceed the tax payable for the year, then the excess should be refunded to the company or applied against other tax debts owed to the ATO.
If this additional deduction pushes the company into a tax loss position then this will be carried forward to future income years, subject to some loss recoupment tests.
Adapted from Treasury Fact sheet: Delivering support for business investment