The government has announced that business with less than $500m in turnover will receive accelerated depreciation deductions for new assets up to 30 June 2021.

This accelerated depreciation is available for assets in the first year of deductions for the asset, and will be 50% of the installed cost of the asset, with the remainder of the asset cost depreciated at existing depreciation rates.

This accelerated depreciation is in concert with the extension of the instant asset write-off. However, it is extended to the following income year.

In response to the anticipated economic downturn resulting from the Coronavirus pandemic, the government has announced accelerated depreciation measures for the 2019/20 and 2020/21 income years.

For businesses with under $500m in turnover, 50% of the asset cost is deductible as a depreciation expense in the year of purchase. This is available for the 2019/20 and 2020/21 income years, and the remaining asset cost will continue to be depreciated at the existing depreciation rate.

NB: This impact statement previously stated and implied the accelerated depreciation was “on top of” the current percentage. This was not replicated in the legislation enacted by Parliament, and has been adjusted for in the above paragraph.

Co-ordination with instant asset write-off

It is worth noting that, for a small portion of time, these businesses will have an instant asset write-off for assets:

• purchased after 12 March 2020, and
• installed ready for use by 30 June 2020.

This instant asset write-off is for assets costing less than $150k. Also, previous to this, businesses with less than $50m in turnover currently had a $30k write-off.

Opportunities

For assets over $30k purchased earlier this year, and assets costing more than $150k for the rest of the 2019/20 income year, a significant deduction is available. Also, any assets purchased after 1 July 2020 and over $1,000, the deduction is available.

Where a client has large purchases in this or previous quarters, it will be worth completing an estimate of tax for the March PAYG instalment. This is because there may be a significant reduction in overall tax payable for the year, in turn freeing up some cash flow.

Small business “unknowns”

We do not know whether this depreciable amount will be located within ITAA 1997 Div 40 or Div 328. As a result, you may not be eligible for the accelerated depreciation in the 2020/21 income year for assets above $30k. This is because, to opt-out of the small business depreciation pools, you must do so for the entire income year.