Instant asset write-off threshold and eligibility

Instant Asset Write-off Threshold Image

One of main tax related items in the recent Federal Budget related to the expansion of the immediate deduction rules for depreciating assets. The amendments in this area received Royal Assent on 6 April 2019 and are law.

There are two major aspects of the changes.

Firstly, the legislation increases the immediate deduction threshold for small business entities (SBEs) in two stages and extends the rules through to 30 June 2020. For the 2019 income year there will actually be three separate immediate deduction thresholds that apply to SBEs that are using the simplified depreciation rules, which are summarised below:

– The immediate write-off threshold is $20,000 for assets first used or installed ready for use before 29 January 2019;

– The immediate write-off threshold is increased from $20,000 to $25,000 if the asset is first used or installed ready for use at or after 29 January 2019 and before 7.30pm ACT time on 2 April 2019;

– The immediate write-off threshold is increased again from $25,000 to $30,000 if the asset is first used or installed ready for use at or after 7.30pm ACT time on 2 April 2019.

The threshold for writing off a remaining SBE pool balance has been increased to $30,000 for the years ending 30 June 2019 and 30 June 2020.

In addition to this, the amendments also permit a business with aggregated annual turnover of at least $10m but less than $50m to claim an immediate deduction for depreciating assets with a cost (i.e. first element plus second element of cost) of less than $30,000 that it acquires after 7.30 pm AEST on 2 April 2019 for a tax year that ends on or after that date and on or before 30 June 2020.

Interestingly, some of the restrictions that apply to SBEs when it comes to claiming an immediate deduction don’t appear to apply to these larger businesses. For example, SBEs cannot apply the immediate asset write-off rules to horticultural plants (eg, grapevines) or assets used mainly to generate rental income. However, these restrictions don’t appear to apply to medium businesses which means that as long as the entity carries on a business under general principles and is under the $50m turnover threshold it could claim a deduction for assets used in residential or commercial rental properties.