Instant asset write-off: minor change
Given the largesse of the new outright deduction for capital assets until 30 June 2022, the instant asset write-off rules have become temporarily irrelevant for most taxpayers (those with aggregated annual turnover of less than $5 billion).
Accordingly, there were no changes to the rules, other than a slight tweaking for costs relating to second-hand goods acquired by large businesses (with annual aggregated turnover between $50 million and $500 million).
The new outright deduction rules do not apply to second-hand goods, other than those acquired by small and medium businesses (with aggregated annual turnover of less than $50 million) – who can fully expense costs associated with second-hand goods.
For this reason, 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 instant asset write-off provisions. The tweak is this: businesses that hold assets eligible for the $150,000 instant asset write-off will have an extra six months, until 30 June 2021, to first use or install those assets.
The following information sets out the rates and thresholds as they currently operate – but should be read in the context that the instant asset write-off rules are effectively irrelevant for most eligible assets purchased after 6 October 2020 until 30 June 2022. The rules set out three taxpayer categories.
Small business entities
Those taxpayers with aggregated turnover of less than $10 million and who satisfy the other tests in Subdiv 328-C of ITAA 1997 can qualify as small business entities for the purpose of the instant asset write-off rules. A depreciating asset is a low cost asset if its cost as at the end of the income year in which the taxpayer starts to use it, or installs it ready for use, for a taxable purpose is less than the relevant threshold: s 328-180.
For small business entities, when the asset is first acquired and first used/installed ready for use, or the amount is included in the second element of cost from:
- 3 April 2019 to 11 March 2020 – the threshold is $30,000
- 12 March 2020 to 31 December 2020 – the threshold is $150,000.
The threshold is due to revert back to $1,000 on 1 January 2021 (although it has not been $1,000 since 2015).
Medium business entities
The next category of taxpayer for instant asset write off purposes is medium sized business entities. This applies to those with an aggregated annual turnover of $10 million or more, but less $50 million.
For medium business entities, when the asset is first acquired and first used/installed ready for use, or the amount is included in the second element of cost from:
- 3 April 2019 to 11 March 2020 – the threshold is $30,000
- 12 March 2020 to 31 December 2020 – the threshold is $150,000.
There was an increase in the threshold from $30,000 to $150,000 when the COVID measures started. The instant asset write-off under s 40-82 will cease to be available to medium businesses from 1 January 2021.
Large business entities
The third category of taxpayer for instant asset write off purposes is large business entities. This applies to those with an aggregated annual turnover of $10 million or more, but less $500 million. The write-off has only been available to such entities while the COVID measures are in place.
For large business entities, when the asset is first acquired and first used/installed ready for use, or the amount is included in the second element of cost from:
- 12 March 2020 to 31 December 2020 – the threshold is $150,000.
As noted, taxpayers in this category have until 30 June 2021 to first use or install assets (rather than 31 December 2020). It otherwise ceases on 31 December 2020.