Small business write off? Temporary full expensing? Aren’t they the same? Not quite.
Hey everyone! Kim Quach from Duo Tax
here for another video designed to help you become a better property investor.
The majority of business owners have heard of the instant asset write off scheme.
We’ve covered this in past videos on how the scheme could be a huge benefit to your
business. So if you aren’t sure what it’s all about, make sure to check them out.
But in a nutshell, the government first introduced it in 2015 as a way
for small businesses to maximise their deductions
by claiming depreciation for certain eligible assets as an
immediate deduction instead of over a few years.
Business owners could only write off assets immediately
if the total cost was less than the threshold amount set out by the ATO.
Since then, though, the ATO has introduced another tax depreciation incentive for businesses
But this time there’s no threshold amount.
Yep, you heard that right. No threshold
But what’s the catch? How does it differ from the instant asset write off scheme?
I’ve got all your questions covered, so make sure to stay tuned.
But, before we get started, we want to be clear that this video is for
informational purposes. In no way should you interpret this as financial advice.
We always recommend working with a qualified financial advisor
or tax agent to give you the best advice for your situation.
Alright, so, first things first
we’re going to cover the timeline of when all these schemes were introduced.
This is important because it determines which incentive applies to which assets.
Okay so in March 2019, the ATO increased the instant
asset write off threshold to $30,000.
This means that small businesses that met the criteria for the scheme could claim
an immediate deduction for assets that cost them less than $30,000.
But, in response to the economic crisis caused by lockdowns and the pandemic,
the government made further changes. For any asset that you purchased and
first used from 12th March 2020 that cost less than $150,000
you could claim an immediate deduction on it.
So, in other words, they increased the threshold from $30,000 to $150,000.
At the same time, they expanded the eligibility criteria
to include businesses with an annual aggregated turnover of less than $500,000,000.
Aggregated turnover is an entity's annual turnover from carrying on a business plus the annual
turnover from any business or individual that is connected with or affiliated with the entity.
Previously the eligibility criteria only extended to businesses
with an annual aggregated turnover of less than $50,000,000
Fast forward to the 2020 Federal Budget speech,
the government introduced a new version of the scheme and coined it: Temporary Full Expensing
which allows small business owners to deduct the full amount of any
eligible depreciating asset first used or installed after 6 October 2020.
In other words, there is no threshold and the scheme has been extended to businesses
with an aggregated turnover of less than $5 billion.
And as part of the 2021-2022 Federal Budget
the temporary full expensing scheme was extended for another year.
This means that it will extend to assets first used or installed
for taxable purposes between 6th of October 2020 and 30th June 2022.
Business owners can also deduct the full cost of improvements
to these assets or their existing eligible depreciating assets made during this period.
The main differences between the two schemes has to do with when you bought the asset
how big your business is and whether or not your business has chosen to use the simplified depreciation rules.
For example, if a small business first used and installed an asset
between 12th of March and 6th of October 2020 the instant asset write off scheme would apply
and they could claim an immediate deduction for the cost of the asset if it is less than $150,000
But to qualify for the instant asset write off
the business must have opted to use the simplified depreciation rules.
If that same business first purchased an asset after 6th of October 2020
the Temporary Full Expensing incentive would apply
and they could claim an immediate deduction
for the entire cost of the asset regardless of its price.
And unlike the instant asset write off incentive, a business owner can choose
to ‘opt-out’ of temporary full expenses for an income year on an asset-by-asset basis
they can claim a deduction using other depreciation rules if they wanted to
But, again, here is where dates are important.
The temporary full expensing incentive will only be valid for assets
that were first used or installed for business purposes between 6th of October 2020 and 30th of June 2022.
So, if you have been thinking about investing in new plant and equipment, now is the time
to do so because you don’t need to depreciate these assets over their usual effective life.
There is one other thing you should be aware of. The temporary full expensing incentive
also applies to new and second-hand assets.
But if your business purchased a second-hand asset, the incentive
will only apply if your aggregated turnover is less than $50,000,000
So hopefully that’s clear the temporary full expensing scheme
is essentially a boosted version of the instant asset write-off scheme
that applies to more businesses and a broader range of assets.
When you acquired the asset and when it was first used or installed
will determine which incentive will apply.
For a summary of how the tax depreciation incentives interact, we’ve left a link
in the description box below that breaks down all the relevant dates and threshold amounts
Otherwise, that’s it from me.
I hope you found this video useful. If you did
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