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Higher deductions available for Australian businesses

Increased thresholds and accelerated depreciation deductions available for assets

Businesses today are required to adapt to a fast-paced and diverse environment to remain competitive. From market stability, to technological advancements and consumer preferences and trends, holding a customer-centric approach is more important than ever before.

Higher deductions available for Australian businesses

To remain sustainable, businesses must be flexible and are consistently required to upgrade their operations and facilities. Updating equipment and renovating can prove to be a costly exercise. However, the application of current instant asset write-off rules can help many small to medium-sized businesses by subsidising expenditure.

The Federal Government has announced an extension of the instant asset write-off threshold increase until December 2020.

It’s estimated that the current multi-million dollar arrangement will provide lucrative benefits to more than 3.5 million Australian businesses. The instant asset write-off eligibility requirements and thresholds have changed over the last few years. Here is an overview of recent changes since 2019.

Instant asset write-off thresholds
Eligible business aggregated turnover Date range Threshold
Less than $500 million 12 March 2020 – 31 December 2020* $150,000
Less than $50 million 2 April 2019 – 11 March 2020 $30,000
Less than $10 million 29 January 2019 – 2 April 2019 $25,000
Less than $10 million 1 July 2016 – 28 January 2019 $20,000

*For eligible businesses with an aggregated turnover from $10 million to less than $500 million, the $150,000 threshold applies for assets purchased from 7:30pm 2 April 2019 but not first used or installed ready for use until 12 March 2020 to 31 December 2020

Both second-hand and new plant and equipment assets are eligible and there’s no limit to the number of assets that a business can claim under the instant asset write-off rules each financial year. As long as both the asset and the business are eligible, the owner can deduct 100 per cent of the asset’s cost.

The instant asset write-off is very effective when a business purchases a new property with pre-existing plant and equipment assets. For example, if a business purchases an industrial warehouse with an air-conditioner worth $100,000 and an industrial gantry crane worth $120,000, they can instantly write of each asset’s value this financial year.

Businesses must understand how the increased instant asset write-off threshold affects assets already placed in the general small business pool. The business can deduct the balance of the small business pool at the end of the income year. This is possible if the balance of the total pool, before applying the depreciation deductions, is less than the current instant asset write-off threshold.

The Backing Business Investment incentive

Many small to medium-sized businesses that can’t claim the instant asset write-off can still take advantage of accelerated depreciation under the Backing Business Investment (BBI) incentive.

Available until 30 June 2021, the BBI encourages business investment and overall economic activity through accelerating depreciation deductions. Any new plant and equipment asset purchased and installed on or after 12 March 2020 and until 30 June 2021 will be eligible for the incentive. With no asset value threshold limit set for the BBI incentive, it allows many businesses to claim back more sooner.

The size of the business also determines eligibility and how the depreciation is accelerated.

Backing Business Investment eligibility
Business type How depreciation is accelerated
Small business with aggregated turnover up to $10 million and using simplified depreciation rules 57.5 percent of the asset's value is deducted in year of purchase. Depreciate under general small business pool in following years
Business with aggregated turnover up to $500 million and not using simplified depreciation rules 50 percent of the asset's value deducted in year of purchase, in conjunction with standard rate of depreciation on the remaining value

For example, if a medium-sized construction business purchased a mounted concrete pump valued at $900,000, this can be depreciated using the BBI Incentive. This would result in a total deduction of $585,000 in the first financial year alone.

The BMT commercial tax depreciation schedule takes into account all applicable accelerated rates and the current instant asset write-off that the owning entity can use. Maximise claims and minimise risk with BMT Tax Depreciation, to learn more contact BMT on 1300 728 726 or Request a Quote.