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Tax benefit extended

ON March 12 the Morrison Government announced a $17.6 billion stimulus package, in an effort to soften the economic blow of coronavirus (COVID-19).

This was the first of several announcements aimed at boosting trade in the face of the looming financial crisis Australia and the rest of the world is experiencing.

A key initiative of the package was a significant increase of the instant tax write-off scheme, from $30,000 to $150,000 for the purchase of new or used assets.

This allows farmers experiencing a good season to purchase and instantly write-off assets up to $150,000 which will offer tax relief immediately, instead of the usual period of incremental depreciation.

Initially this measure was only available until June 30, 2020, in which time the asset purchased had to be paid for and delivered.

This measure caught many machinery dealers unaware, who were then left scrambling to fill orders before the deadline. 

In mid-June it was announced that this scheme had been extended until December 31, 2020.

This also had the advantage of enabling business owners purchasing multiple assets to claim the benefit over two financial years.

This scheme is available to Australian businesses with annual turnover of less than $500 million, up from the previous limit of $50 million.

It is believed these measures will support over 3.5 million businesses.

They are designed to support business sticking with investment they had planned and encouraging them to bring investment forward to support economic growth over the near term.

The instant asset write-off also helps improve cash flow for businesses by bringing forward tax deductions for eligible expenditure.

The threshold applies on a per asset basis, so eligible businesses can immediately write-off multiple assets provided each cost less than $150,000.

Accelerated Depreciation

AS well as the instant asset write-off, another option available to businesses is accelerated depreciation on larger asset purchases.

The criteria for this scheme is stricter, for example the asset purchase must be new.

The way this scheme works for small businesses (turnover of less than $10 million) is that assets over the instant asset threshold of $150,000 which are eligible for the accelerated depreciation are added to the general small business pool.

Businesses can deduct an amount equal to 57.5 per cent (rather than 15 per cent) of the business portion of a new depreciating asset in the year it is added to the pool.

In later years, the asset will be depreciated under the general small business pool rules.

For example, Anne and John own a contracting business, through which they provide harvesting and transport services.

The business has an aggregated annual turnover of $3 million for the 2019–20 income year.

On May 1, 2020, Anne and John purchase a new truck for $260,000, exclusive of GST, for use in their business.

Under past tax arrangements, Anne and John would depreciate the truck using their general small business pool.

This means they would deduct 15 per cent of the asset’s value when they added it to the pool, leading to a tax deduction of $39,000 for the 2019-20 income year (assuming there are no other assets in the pool).

Under the new accelerated depreciation, Anne and John will instead claim a deduction of 57.5 per cent when they add it the pool, leading to a deduction of $149,500 for the 2019-20 income year.

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