The Federal Government has announced a Backing Business Investment (BBI) incentive to provide support for Australian businesses. The incentive is designed to encourage business investment and support growth.
• The BBI incentive is in place until 30 June 2021
The BBI incentive offers benefits to a wide range of Australian businesses through accelerated depreciation deductions of qualifying assets. This is a time-limited incentive that is only available over a fifteen month period.
What businesses are eligible?
The BBI incentive recognises that there are different depreciation needs for small and larger businesses. As a result, eligibility requirements for the BBI incentive depends on the type of business that is claiming.
Eligibility requirements for small business entities
For small businesses with an aggregated turnover up to $10 million and use the simplified depreciation rules can place eligible assets to the general small business pool.
Doing so allows the small business to deduct an amount equal 57.5 per cent of the assets value in the same financial year. In following years, the asset will continue to be depreciated under the general business pool rules.
Example: Accelerated depreciation for small business
Lou owns LM Marina Pty Ltd that has an aggregated annual turnover of $9 million for the 2019-20 income year. On 1 May 2020, Lou purchased brand new travel lifts for $160,000, for business use.
Under previous arrangements, LM Marina Pty Ltd would depreciate the travel lifts using their general small business pool. This would allow them to deduct 15 per cent of the asset’s value when added to the pool, resulting in a tax deduction of $24,000 for the 2019-20 financial year.
Under accelerated depreciation, LM Marina Pty Ltd will instead claim a deduction of 57.5 per cent when added to the pool, leading to a deduction of $92,000 for the 2019-20 financial year.
Eligibility requirements for other business entities
Businesses that have an aggregated turnover up to $500 million and don’t use the simplified depreciation rules, may be eligible to deduct a specified amount of the qualifying asset.
In this case, the business can deduct 50 per cent of the asset’s value in the financial year, in conjunction with the standard rate of depreciation calculated on the remaining value after the 50 per cent is removed.
Example: Accelerated depreciation for medium sized business
A&X Construction Pty Ltd has an aggregated turnover of $250 million for the 2020-21 income year. On 1 August 2020, A&X Construction Pty Ltd purchased a medium sized crane for $1 million for business use.
Under previous arrangements, A&X Construction Pty Ltd could claim 13.33 per cent in depreciation when using the diminishing value method, based on the crane’s effective life of 15 years.
However, with the accelerated depreciation, A&X Construction Pty Ltd can claim a depreciation deduction of $566,650 in the 2020-21 financial year. This includes 50 per cent of the crane’s value under accelerated depreciation ($500,000) plus 13.33 per cent of the remaining $500,000 under the standard depreciation rules ($66,650).
What assets are eligible?
Only new plant and equipment that are depreciated under Division 40 are eligible if they are acquired from 12 March 2020, and first used or installed by 30 June 2021.
Second-hand assets, capital works and assets that are depreciated under Division 43, and assets acquired and installed outside of the timeframes aren’t eligible. For example, if a business signed a contract for a new fit-out on 3 March 2020 and it was completed and installed after 12 March 2020 the business would not be eligible for the BBI incentive on the new fit-out.
How do I make sure I can claim the Backing Business Investment incentive?
If you are an eligible business, you can ensure that you claim this incentive by obtaining a tax depreciation schedule.
For over twenty years, BMT Tax Depreciation has been the most trusted depreciation specialist in the industry. Over this time, BMT has helped many business owners maximise their cash flow with depreciation deductions. To learn more, contact the expert team on 1300 728 726.