It was clear that this year’s budget was all about jobs, as there’s no economic recovery without getting Australians back to work. The full expensing policy introduced in this budget makes up a huge $26.7 billion of the crucial JobMaker Plan. This policy will help support investment, jobs and has made some major changes to how business owners can depreciate assets.
The JobMaker Plan and full expensing
The aim of the JobMaker Plan is to boost economic growth, create jobs, invest in future industries and skills, remove red tape, guarantee essential services, and restore confidence. Businesses with an aggregated annual turnover up to $5 billion can now deduct the full cost of eligible assets that are acquired and first used by 30 June 2022. This method is called ‘full expensing’ and is ultimately an evolution of the instant asset write-off.
Full expensing is available to 99 per cent of Australian businesses. This deduction will be taken from a business’ taxable income, meaning they pay less tax and have more back in their pockets. On face-value this seems straightforward – a business can buy an asset and claim that expense straight back.
However, with different aggregated turnover requirements, previously used assets, and past arrangements such as the instant asset write-off and Backing Business Investment (BBI) incentive, it’s more complex than it seems.
Business types and aggregated turnover
Before we get into how full expensing, the enhanced instant asset write-off and the BBI all work together, it’s important to understand what businesses can take advantage and how.
The good news is that all business types can take advantage of full expensing. A business ‘type’ can be based on its aggregated annual turnover.
The Australian Taxation Office defines small business enterprises (SBE) as businesses with an aggregated turnover of up to $10 million. For this article, we will call medium business enterprises (MBE) those with an aggregated turnover of up to $50 million, and large business enterprises (LBE) as those with an aggregated turnover between $50 and $500 million.
What happens to brand new assets purchased after 12 March 2020 and before 7:30pm (AEDT) on 6 October 2020?
If the brand-new asset costs less than $150,000 then all business types can instantly write it off when it’s installed before 30 June 2021. However, if the asset is above the $150,000 limit, businesses can only depreciate it using accelerated rates under the BBI incentive .
What happens to brand new assets purchased after 7:30pm (AEDT) on 6 October 2020 and before 1 July 2022?
This is where the lucrative deductions are supercharged. Any business type, with an aggregated turnover of up to $5 billion, can write-off the full expense of eligible assets instantly. With no threshold or limit to the number of assets a business can claim in a single year, this incentive has the potential to boost cash flow by hundreds of thousands.
Timeline for full expensing for second-hand assets
This is where full expensing gets more complex, especially for LBEs. A key factor that affects the full expensing method is when the asset was purchased.
What happens to secondhand assets purchased after 12 March 2020 and before 7:30pm (AEDT) on 6 October 2020?
If the asset was valued below $150,000 all SBEs, MBEs and LBEs can instantly write it off in that year’s tax return. The only requirement is that it is installed by 30 June 2021. For second-hand assets valued above $150,000, depreciation works based on the business’s aggregated turnover. SBEs can place the asset in their simplified small business pool, while MBEs and LBEs must depreciate the asset based on its effective life.
What happens to secondhand assets purchased after 7:30pm (AEDT) on 6 October 2020 and before 1 July 2022?
All SBEs and MBEs can instantly deduct any eligible second-hand asset in the same financial year through full expensing. LBEs could also instantly deduct the asset if it’s valued at less than $150,000. However, the asset must be purchased on or before 31 December 2020 and installed by 30 June 2021.
If the asset’s purchase and installation dates don’t meet this time frame, it must be depreciated based on its effective life.
Is the small business pool still available?
Small businesses can still take advantage of the small business pool, which allows SBEs to group assets and depreciate them at a higher rate. A business can now deduct the entire balance of their pool at the end of the financial year while full expensing is available.
Bradley Beer chief executive officer, BMT Tax Depreciation