Information last updated 30 April 2020.

 

Instant Asset Write-Off – for assets up to $150,000

As part of its economic response to counter the impacts of the escalating Coronavirus pandemic, the Federal Government increased the instant asset write-off threshold from $30,000 to $150,000 and expanded access to include businesses with aggregated annual turnover of less than $500m (up from $50m). The higher thresholds will apply until 30 June 2020.

How do I work out if I am under the $500M turnover threshold?

Turnover is calculated on a group basis, not a stand-alone basis. Entities are grouped primarily through control relationships, i.e. the taxpayer controls another entity, or is controlled by another entity. Entities can also be grouped through joint control, i.e. where a third-party controls both the taxpayer and another entity. The group includes both Australian and overseas entities. Importantly, ‘control’ may be broader than merely ownership interests and can also include situations where two or more businesses are acting together, or in concert with one another, even if they don’t have common ownership.

Whilst for most Australian-owned private businesses the turnover threshold should be relatively easy to assess, subsidiaries of foreign companies should be particularly careful to ensure that they understand the turnover of the entire group.

The turnover threshold is based on either prior year turnover or current year turnover.

What is the maximum cost for an asset to qualify?

The threshold is for assets which cost less than $150,000. This is measured on a per asset basis, however care will need to be taken where assets are part of a set, or a group of items could be considered a single asset.

If a business is registered for GST, the $150,000 threshold is the GST exclusive amount, while for those businesses that aren’t registered for GST, the threshold is inclusive of GST.

When must an asset be acquired by?

The increased threshold will apply to assets acquired between 12 March 2020 and 30 June 2020. Crucially, the asset must also be used, or installed ready for use, in the taxpayer’s business by 30 June 2020.

Can I acquire second hand assets?

Yes. Both new and second-hand assets are eligible for the instant asset write off.

Note that only new assets are eligible for the 50% deduction measure (which is separately discussed below under ‘Backing Business Incentive – 50% accelerated deduction for new assets‘).

When can I get the benefit of the deduction?

For most businesses the benefit of the deduction won’t be obtained until the 2020 income tax return is lodged. For businesses paying PAYG Instalments, an earlier benefit may be able to be obtained by varying these instalment payments, but the risk of penalties for inaccurate variations needs to be considered.

What if I have a substituted accounting period?

The same timing rules applies. The benefit of the deduction won’t be obtained until the 2020 income tax return is lodged, regardless of whether you have a 30 June year end or a substituted accounting period.

What if I lease assets or use asset finance arrangements?

The instant asset write-off is only available in situations where you would otherwise be entitled to claim depreciation deductions. Assets funded from loan finance or acquired under hire purchase arrangements should be eligible. Rental arrangements would not generally be eligible (for the renter).

Can I apply the increased instant asset write-off threshold to my small business pool?

Yes, when the balance of the small business pool as at 30 June 2020 is less than $150,000.

Is this measure law?

Yes, this measure is now law.

Backing Business Incentive – 50% accelerated deduction for new assets

A further part of the Government’s economic response is to allow businesses with an aggregated turnover of up to $500M to claim a 50% accelerated deduction for the costs of acquiring new assets. This measure will apply until 30 June 2021.

What businesses are eligible?

To be eligible for the 50% accelerated deduction for new assets, a business must meet the $500M turnover threshold, the same as for the instant asset write-off.

When must an asset be acquired by?

The 50% accelerated deduction is available for assets acquired between 12 March 2020 and 30 June 2021. The asset must also be used, or installed ready for use, in the taxpayer’s business by 30 June 2021.

When is the additional deduction claimed?

The 50% accelerated deduction is claimed in the year when the asset is first used, or installed ready for use, in the taxpayer’s business.

When can I get the benefit of the deduction?

For most businesses the benefit of the accelerated deduction won’t be obtained until the 2020 or 2021 income tax return is lodged. For businesses paying PAYG Instalments, an earlier benefit may be able to be obtained by varying these instalment payments, but the risk of penalties for inaccurate variations needs to be considered.

Can I apply this measure for second hand assets I have acquired?

No. Only new assets are eligible for the 50% accelerated deduction.

How does the depreciation calculation work?

If an eligible asset was acquired on 1 July 2020 for $1 million and the asset would ordinarily be depreciated at 20% per annum, then the following depreciation deductions would be claimed:

  • 30 June 2021 year: $600,000 of depreciation, being $500,000 accelerated deduction plus $100,000 ‘regular’ depreciation (i.e.$500,000 (being the $1 million less the $500,000 accelerated depreciation) x 20%)
  • 30 June 2022 and subsequent years: the remaining $400,000 claimed over time at the standard 20% depreciation rate each year.

What if I have a substituted accounting period?

The same timing rules apply, regardless of whether you have a 30 June year end or a substituted accounting period.

What if I lease assets or use asset finance arrangements?

The accelerated deduction business incentive is only available in situations where you would otherwise be entitled to claim depreciation deductions. Assets funded from loan finance or acquired under hire purchase arrangements should be eligible. Rental arrangements would not generally be eligible (for the renter).

Is this measure law?

Yes, this measure is now law.

Boosting Cashflow – $100,000 PAYG Withholding rebate

Another aspect of the Government’s economic response is a rebate on payments of PAYG Withholding. This is designed to assist SME businesses maintain their cash flow and so retain their employees.

What businesses are eligible?

To be eligible for PAYG Withholding rebate, you must be a business that has an aggregated annual turnover of less than $50 million and makes payments to employees that are subject to withholding obligations (such as salaries and wages).

The rebate will only be available to active eligible employers established by 12 March 2020. However, charities which are registered with the Australian Charities and Not-for-profits Commission will be eligible regardless of when they were registered, subject to meeting the other eligibility requirements.

How do I work out if I am under the $50M turnover threshold?

The turnover threshold is determined on the same basis as for the instant asset write off (i.e. on a group basis and including Australian and overseas entities) but with a $50M threshold.

The turnover threshold is based on the entity’s turnover in the most recent income year (which would likely be the 2018 or 2019 income years for most entities). An entity can also satisfy the turnover requirement where it expects its turnover for the current income year to be less than $50m.

How much will I be entitled to?

Businesses are eligible for a payment based on their PAYG Withholding withheld from their eligible payments (such as employee salary and wages) during March 2020, April 2020, May 2020 and June 2020. The calculation of the amount differs depending on whether the business lodges their activity statements quarterly or monthly.

The minimum entitlement is $10,000 (provided you make eligible payments such as salary and wages during the relevant periods, even if there is no PAYG withheld), up to a maximum entitlement of $100,000.

The payments will be delivered in two stages, each stage having maximum total payments of up to $50,000 (i.e. up to $100,000 in total over the two stages).

Stage 1 – initial rebates

Quarterly lodgers will be eligible to receive a payment of 100% of the PAYG withheld for the quarters ending March 2020 and June 2020.

To provide a similar treatment to quarterly lodgers, monthly lodgers will be eligible to receive a payment of 300% of their March 2020 PAYG withheld, and 100% of the April 2020, May 2020 and June 2020 PAYG withheld.

The maximum total entitlement for stage 1 is capped at $50,000, the minimum entitlement is $10,000 (provided you make eligible payments during the relevant periods, even if there is no PAYG withheld).

Stage 2 – additional rebates

An entity will be eligible for the stage 2 additional rebate if they were eligible for the stage 1 rebate and they continue to lodge activity statements with the ATO.

The stage 2 rebate that the entity will receive will be equal to their stage 1 rebate amount.

Quarterly lodgers will be eligible to receive 2 further payments, each equal to 50% of their total stage 1 rebate amount. The payments will be credited to their account after lodgement of their June 2020 and September 2020 activity statements. So, for example, if a business had a total stage 1 entitlement of $40,000 and remained active, they would receive a $20,000 stage 2 entitlement after lodging their June 2020 activity statement and another $20,000 after lodging their September 2020 activity statement.

Monthly lodgers will be eligible to receive 4 further payments, each equal to 25% of their total stage 1 rebate amount. The payments will be credited to their account after lodgement of their June 2020, July 2020, August 2020 and September 2020 activity statements. So, for example, if a business had a total stage 1 entitlement of $40,000 and remained active, they would receive a $10,000 stage 2 entitlement after lodging their June 2020 activity statement and similarly $10,000 after lodging each of their July 2020, August 2020 and September 2020 activity statements.

The maximum entitlement for stage 2 is the amount the entity received under stage 1 (i.e. up to $50,000).

When do I get the payment?

The ATO will deliver the payment as a credit to the business upon lodgment of their activity statements. Where this places the business in a refund position, the ATO will deliver the refund within 14 days.

The June 2020 activity statement will trigger both the final stage 1 payment and the first stage 2 payment, as calculated above.

The minimum entitlement payment (i.e. $10,000) will be applied to the business’ first lodgment.

Is this measure law?

Yes, this measure is now law.